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September 14, 2006

The time to be nimble, Thurs., Sept. 14, 2006, 7:30 AM

Heading into Quadruple Witching tomorrow, along with a slew of important economic data, the odds of an inflection point being reached are considerably elevated.

It's time to be vigilant and nimble. It's not a good time to fall asleep at the switch. Otherwise you could find yourself caught in a vortex similar to 2000, which you know turned into a couple very traumatic years for your portfolio wealth.

Some keys to watch are the foreign equity markets and the precious metals. Small U.S. commercial lending banks are another. Also, the UK equity market has been very strong, so I'm interested to see if strength can persist there through September-October.

As to gold, the spot gold price has to move up to the 605-610 level to get over the hump. It might not make it for a while as central bankers struggle to keep the lid on market stability. They still hold a lot of gold to fire into the market, but clearly their ammunition is getting low.

Ultimately the Hard Money crowd will prevail. But that may take several months, possibly years to work out. Still, I'd like to see gold over 610 to give me some confidence that being there is a safe port in the coming storm.

I continue to hold the view that the U.S. equity market will have a hard landing " with a 1000 point loss on the Dow in a week to happen within three to four months.

I am not the least bit impressed that the U.S.-sponsored World Bank and International Monetary Fund are today making noise that global economic growth estimates for 2006 are being boosted to +5.1 pct and 2007 estimates to +4.9 pct.

Besides, these are economic forecasters whose work is not particularly relevant to securities markets and portfolio management.

We need to focus on risk. I think the slowing of the U.S. economy and the roll-over of ARM financing of U.S. real estate are major concerns to the equity market. I don't need an economist to tell me that.

I'm watching the small local and regional bank stocks because that's another key to this market. These are the companies that will get hurt by the inverting yield curve and the growing real property foreclosure situation. Unfortunately, these small banks do not have profit-generating proprietary trading, investment management, and corporate finance departments to balance the losing credit side of the business. This is where a real estate collapse would show up.

Later today, I'll provide a list of these small U.S. banks that you ought to be watching.



Gold spot chart: (Interactive link)

Silver spot chart: (Interactive link)

Platinum spot chart: (Interactive link)

Palladium spot chart: (Interactive link)

Asia-Pacific indices: (Interactive link)

European indices: (Interactive link)

Posted by Posted by Bill Cara on September 14, 2006 07:30:37 AM | Category: Cara Today in the Market

Discourse

Someone pointed out on another site that after the September options expiration date the DOW has dropped about 500 points in each of the last 3 years. I looked back and this seems accurate. It also appears that for every year since 1999 options expiration was either part of a big decline or the last positive bump before a materal decline into October.

Posted by: Mike [TypeKey Profile Page] at September 14, 2006 8:07 AM [link]

Re hard landing.....Here in Richmond, VA my husband and I have a morose interest in reading the obituaries (he did it long before I, and I realize that one passes an important life milestone when obits become a daily "must read") and trustee sales. In today's paper there are 20 notices, 12 (60%) of which are for note balances north of $90K. The north of $90K is noteworthy, for before trustee sales were mostly (80-90%)less than that. Anectodal, yes, but I think also telling in the shift.

Posted by: Leisa [TypeKey Profile Page] at September 14, 2006 8:35 AM [link]

UK had a housing bubble burst before US. It seems that UK's economy is holding well. If UK is a good forward indicator of US, a slowing US economy without recession is possible. Gold and commodity will likely rise though in that case.

Posted by: yc32 [TypeKey Profile Page] at September 14, 2006 10:41 AM [link]

One of the tells I use is the steel manufacturers. As a supplier to so many industries, they are in a position to feel the effects of a slowdown sooner than almost everyone from auto manufacturers to commercial builders to defense contractors. For the last few years they have been running flat out, and there has been a tremendous worldwide increase in capacity fueled by the explosive growth in China.

Take a look at a chart of US Steel (NYSE: X). It looks like it is ready to drop off the table, and has lagged the latest rally.

Posted by: BigHube [TypeKey Profile Page] at September 14, 2006 2:04 PM [link]


BigHube...

I'm thinking along the same lines...

I'm looking for signs of weakness in things like steel, Fedx etc.. to see if the economy really is slowing.

If it is slowing - people will begin to wonder why they just bought a new high in some of the US indexes.

The Baltic Index is also another good leading indicator and I believe it is a good proxy for steel.

-tradesman-

Posted by: Tradesman [TypeKey Profile Page] at September 14, 2006 2:37 PM [link]

yc32 wrote:

"UK had a housing bubble burst before US. It seems that UK's economy is holding well."

I disagree with this assessment. The UK's housing market declined from 1989 to 1994-95 (down 35% nationally, up to 40% in Greater London). Since then it has expanded massively (with prices more than tripling), with only a slight pause in growth in late 2004 to mid-2005 (with virtually no decline in prices). From late 2005 to this summer, prices have surged again.

The UK housing market has not experienced a burst in the last 10 years, although, like the US, it is definitely due for one. Both the US and the UK share high home ownership rates (70%) and, err, very "creative" financing options.

The full impact of these (likely huge) respective declines will only be understood afterwards, but history points to the likelihood of recession.

Posted by: just_observing [TypeKey Profile Page] at September 14, 2006 4:22 PM [link]

"Inflection point" ! Sounds good to me....market overbought
and commodities oversold. Hmmm... I feel a nip in the air
tonight....options tomorrow. Yeehaaa

Posted by: DollarBill [TypeKey Profile Page] at September 15, 2006 2:40 AM [link]