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Markets: Up or Down ?

Finally six worst months in recent market history are over.With various cross-winds, markets and pundits are not sure where markets are headed in next 3 and 6 months and whether this year would end in positive or negative column. So let me throw in what I Think:

Markets are facing following headwinds:
  • Oil price near $150 and possibly going as high as $170. In general commodities reaching all time highs
  • Housing markets still in slump
  • Credit crisis far from over with some more large write-downs coming and potential repeat of Bear Sterns type collapse
  • Inflation reaching well beyond comfort level of common man as well as central bankers
  • Geo-political uncertainties as well as elections on key countries like USA, India
While these headwinds are pretty strong, there are some important factors which may play in favor of markets (tailwinds:-)
  • Markets are already down by close to 20% and there are trillions of $$ on sidelines waiting. Very soon value investors would jump in and provide markets a floor above 10000 (Dow index)
  • Even though oil is in every day's news, once it crosses $150-170, there is not much upside left and only direction oil can go is down providing support for markets
  • With some banks like UBS and even insurance players like Radian (worst performer of my Model Portfolio 2008) providing some indication that we may be near bottom of credit crisis providing some hope to financials
  • Inflation is still high but with economy slowing, it should remain under control through rest of year providing some wiggle room to central bankers to hold the rates at current levels
  • As summer progresses, political landscape would start becoming clearer (already futures markets is predicting that Obama would be next president). In anticipation of this, markets would start adjusting 6 months in advance
In my opinion, in long-term, factors in favor outweigh factors against the markets (though in short term, it is exactly reverse), I am expecting markets to go upwards but I am doubtful if markets would be able to close in positive column. For that to happen, Dow would have to climb nearly 2000 points !

Have a happy Independence Day Weekend !

/Shyam

Comments

Anonymous said…
shy by the end of 2010 sdx will have a 3 digit handle

not to say we dont rally for a bit becasue we should but we are going to enter a deflationary period...dont buy the hype...cash will be king but the "bottom" will not be reached for a while...

i was right on about financials and i feel the same about this...oil will continue to drop and that will present another world class short entry into spoo or /nq or /er2

all the bill miller types have never traded a bear market...look to 2000-2003 for guidance...look to nikkie to see what credit and real-estate bubbles can do to equities
10:11 AM
Anonymous said…
today shyam was another day to prove the deflation thesis

look short banks may well be profitable but by far the best trade soon will be short mon pot agu ipi long smn

something like that...also short names like x jrcc etc

as demand destruction kicks in deflation of these stagflation type hedges kick in

I WILL PROVIDE EXAMPLES OF CURRENT ASSET DEFLATION and give you the assets left to follow the trend

debt
equity
electronics
consumer durable goods
homes
many service industries

ones with "meat on bone"

fetilizer
steel (yet car sales in tank)
energy

to me this is no brainer shy...i know you are optimist but i have always told myself OPTIMISM IS NOT AN INVESTMENT THESIS, NIETHER IS BUY AND HOPE

or you dont want to short you could buy with 2-3x leverage the front end of treasury curve(another deflation play)

so today not good day to put on these plays...we really need some commodity type pumper (perhaps Heebner, cramer, or something) to come on cnbc and generate some freaking interest...then i will be adding to the one lonely POT put i have
3:36 PM
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