Friday, September 7, 2007

Who Taught The Government To Count?

There are not many people today happy with how the government counts. One might ask. “How did 100,000 people lose their job and nobody knew for 2 months?” I do not know of nobody who was expecting a decline in jobs for August. By the same token I could not find anybody who guessed that we would have had the downward revisions that were made today for June and July.


One client called this morning asking me about the HPB I mentioned in my most recent Blog. The value of the opportunity in HPB changed dramatically today. Most of the talking heads we saying before today "as long as employment holds up we will be fine”. The housing market got into a lot more trouble today. Lenders will be even stricter about making loans to buyers and those who want to refinance.

Think about this, if the capital markets can’t figure out the price of a bond how in the heck can a mortgage lender figure out the price of a house and in turn how much they can lend on that house today?

The feeling going around Wall Street today was we will get through this in the next few months--don’t worry this could well be a significant buying opportunity. What else do you think they are going to say about today? There are two concerns that people will be thinking and worrying about over the weekend. First, HOW MUCH WILL THE FED CUT INTEREST RATES AT THE SEPTEMBER 18 MEETING? Second, WILL THE PREVIOUS LOW IN THE MARKET HOLD?

Some people are saying the Fed is behind the curve and a 25 or 50 basis points cut won’t make change. I don’t think the Fed will cut rates any more than 50 basis points because they will fear that anything more will spook the markets. Keep in mind it takes 12 to 18 month for changes in interest rates to work their way through the economy. Any changes in interest rates by the Fed will be more emotional than anything else.

As to the second question from my standpoint I already on the record at an early Blog that I don’t think the 12,845 on the Dow will hold. We are, as of today, just about 250 points from that level we could very well test the level on Monday. I think we may make several runs at testing the previous low but we are going down.

WHAT IS A PERSON TO DO?

Don’t sell in a panic, look for rallies to sell by reducing your positions slowly. Take a real hard look at the quality of your stocks and bonds. Cash is king and cash in T-Bills is the Emperor. This will work itself out, but it will take longer than most of the pundits are saying. In yesterdays Blog I spoke about HPB and I got a call today asking what else would I recommend? I know who I send e-mail notices to but I don’t have any real way to monitor all the people who see or hear about a recommendation on this Blog. Any issue mentioned on this Blog must be reviewed with an investment professional for suitability to you needs, goal and risk factors.

I said earlier that you should look at the quality of you investments. I have and have had for a significant period of time a large position in Annaly Capital Management, Inc. (NLY). This company is listed on the New York exchange and invests and manages US Government, agencies and instrumentality's bonds on a leveraged basis. The stock is volatile but it manages for its shareholders the highest quality fixed income investments available. The volatility is not for everybody, but call your advisor and ask him what he or she thinks about NLY for you.

Hang on to your hats and your wallets till the 18.

Dan Perkins


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