Tuesday, February 5, 2008

Believe It Or Not The Fat Lady Has Not Budged.

It is hard to believe it, but while today the Dow was off just about 3% or 350 points, the Fat Lady isn’t budging. Let me put the decline of today in perspective. If you had your money invested in 90-Day T-Bills, in 12 months you would earn 2.25%. In order to make up the loss for today if you moved what money you had left, to 90-day T-Bills, it would take about 16 months to get back to the value at the close of the market on Monday for a net gain of zero.

Taking no risk, in 90-Day T-Bills, is showing that you do get very little return for no risk investing. In reality no risk investing should produce no return. No risk should be equal to inflation so that by making a no risk investment you should make a return of zero adjusted for inflation. I find it interesting that on Monday people were complaining about the low rate of return on 90-Day T-Bills and 24 hours later they couldn’t get enough T-Bills.

I said in an earlier Blog the we had to go back and test the previous low to find out if we have truly hit bottom and then the “Fat Lady” can sing. We will know when we have hit bottom when everybody finally gives up and says that cannot take it any more and they sell everything both the good and the bad and go to cash. Sometimes they call this final capitulation a blow off when it is truly “The darkest before the Dawn”.

I have been warning all of my clients and readers for more than a year, that we are far from over in the housing problem and the credit market issues. It seems to me that just when we think the news turns positive something negative comes out to stop the advance of the markets. Today it was the ISM index for the second month in a row it came in under 50%. Any number above 50% is positive and any number below 50% shows contraction in the economy which is negative.

When you add the ISM number of today, plus the jobs number of last Friday, and GDP of Thursday all of these signs are pointing to some form of a slowdown if not an outright recession for the United States. In addition to all this bad news the commodity markets came under sell pressure today. The only place to hide was US Governments. We could find ourselves tomorrow that the T-Bill market will see prices fall and yield rise unless the selling pressure increases in the stock markets. Almost everyplace you turn you can loose money or at the bottom it would appear to be the case.

What will I do on Wednesday? Look for opportunity and perhaps buy but not sell.

I suggested in many postings that volatility will continue and we may well be into the second half of the year before significant stability sets in the US markets. One of the wild cards that I have been thinking about recently is the global connection. People say we are in a global economy and that the US is less important to the growth of the global economy than it used to be. I’m not sure that if the test (market bottom) comes that I’m looking for in the US that that statement will hold up.

Dan Perkins

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