I cave in

[BigSully1]

Lower interest rates tend to weaken the dollar, and many analysts believe the weak dollar is the reason why oil set new inflation-adjusted records four times this week, and has risen 23 percent in less than a month.

Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling. On Friday, the dollar set a new low against the euro Friday before rising. But most investors believe that despite occasional rebounds, the dollar is likely to continue falling as the Fed continues to cut rates.

"The swings in the dollar are still the most critical item," said Jim Ritterbusch, president of Ritterbusch and Associates, an energy consultancy in Galena, Ill.

Concerns about a possible conflict between oil producers Venezuela and Colombia also supported oil prices Friday. Earlier this week, rebels attacked and shut down a a Colombian oil pipeline that transports 60,000 barrels of oil a day in retaliation for a Colombian raid into Ecuador. Venezuela threatened to slash trade and nationalize Colombian-owned businesses, and Venezuela and Ecuador have sent troops to their borders with Colombia.

Many analysts believe oil is overvalued, arguing that oil supplies are at high levels and the demand is falling. In its latest inventory report, the Energy Department said overall demand for oil dropped 3.4 percent over the last four weeks compared to the same period last year.

"We don't see oil demand accelerating while the price has its foot on the throat of consumers," said Tim Evans, an analyst at Citigroup Inc., in a research note.

But while analysts expect oil's underlying supply and demand fundamentals to eventually pull down its price, few are willing to predict when that will happen. Meanwhile, oil could continue rising to as high as $120 in the short term, according to some forecasts.

Goldman Sachs, a widely watched oil price prognosticator, said oil could average $110 a barrel by 2010, up from a previous forecast of $80, and said a price spike as high as $200 a barrel is possible, according to Dow Jones Newswires.

[hyhl]

David, I really do not think it is the right time to go bear. Including March, DOW went down for 5 consecutive months.  Such a down trend only happens once in the history. How much downside potential do we have then?



I still believe liquidty only affects short term, but we have been in this "bear" market for long enough.

submortage, credit crunch, blahblah.  But look at the history, is this time really worse than any previous crisis (1987, 1990, 1997, 1998, 2001) ??

[poli]

David, 
Hang in there,  now that you have admitted defeat the market will start to head up again, ha ha.  Concerning your long term bull case was wrong, I beg to differ.  I really don't have a view beyond mid 2009 so I guess it is not a real long long term view but I believe the process of establishing a stock market correction bottom has unfolded in text book fashion over the last couple of months.  First,  the high volume closing low on January 22,  the subsequent rally and then the correction bottoming process to test that low on lower volume than the January 22 low.  This is where I feel we are at now.  I believe volume is always the key.  I believe this bottoming process will be over by March 21st and that the subsequent rally will take the S&P 500 to the 1600s sometime in 2009.  That is as far out as my crystal ball will show me.   I was a buyer in todays market ( I also bought more PAL ) and will be again on select stocks over the next couple of weeks.  Of the 4 stocks you recommended to sell I only own GSB & TBSI. (I own all the others in main portfolio except OPMR) I am going to hang onto both of those for now to see if the market agrees with my prediction.  I am in relatively good shape on both of these.  I sold my initial purchase of GSB on 10-19 for a nice profit and repurchased it again on 11-29 and still own those shares now, so I am kind of playing with house money and my cost basis for TBSI is only around 34.00.  Sorry for the long message but I just wanted to give my two cents here. David thanks for all your hard work, I really appreciate it. For all that are hanging in with some exposure to the market good luck, we will know in the fullness of time.  To all, good health and trading.

Poli

[Garoh]

Hi David
You've been doing a great work , don't stop ...
If you have losing trades on the other hand you had many winning trades , don't let te market beat you down 
I'm sure you we'll finish 2008 with more than 40% return .
I spent all the night yesterday looking at many Technical indicators and market's indexes charts .Guess what !! I found out that we'er all most reached a bottom by friday's close 

Next week could be the end of these losses and we'll be heading north for sure . Just hang on and keep your good work up 
Frankly, I've never got a loss with any of your trades , I always tried to get in at the right time ..

Be strong David and we'er gonna see green numbers soon 

[capricho]

I have been out of the market for some time and firmly believe that the US economy is so trashed that almost nothing will help it in the short term. It is very likely that Bernanke will lower rates by .75 points in order to give the housing market a boost, but this will be a day late and a dollar short. Consumers are not buying, jobs are being decimated, homeowners are upside down, inflation is here to stay, the US account deficit is unsustainable, and the dollar is and will continue to be in the toilet. I have lived through many prior recessions but never have I seen a perfect storm brewing for a mega downturn such as what we will experience this time around. It's no time to throw money in an equity driven market with the illusion that valuations will increase in this crushing environment.

[poli]

Capricho,
Everything you say has merit and all indications appear you may be right, but I do not believe it will happen between now and mid 2009. We will all know in the fullness of time.  If it unfolds as you think I will know shortly and will make adjustments accordingly. Where do you live, in the US?

poli

[kslifka]

I have been out of the market for some time and firmly believe that the US economy is so trashed that almost nothing will help it in the short term. It is very likely that Bernanke will lower rates by .75 points in order to give the housing market a boost, but this will be a day late and a dollar short. Consumers are not buying, jobs are being decimated, homeowners are upside down, inflation is here to stay, the US account deficit is unsustainable, and the dollar is and will continue to be in the toilet. I have lived through many prior recessions but never have I seen a perfect storm brewing for a mega downturn such as what we will experience this time around. It's no time to throw money in an equity driven market with the illusion that valuations will increase in this crushing environment.

I don't think it's that bad.  We just went through and unsustainable housing boom or what I like to call housing inflation for the past 10 years.  Too many people thought they could make money by hoarding land and building homes for a large profit.  It worked for a while...but now these land "whores" are suffering.  I think this is a good thing as the excess sorts it self out.  These land "whores", seeing that it is not as good of an investment, will sell the land at a more reasonable price allowing  more and more people the ability to buy and use the land in a more productive way.  Sure many workers in the housing industry...such as builders...realtors and mortgage brokers will lose their jobs...but this is no different than the internet bubble that broke in 2001.  February 2007 had 63,000 jobs shed...but in April 2001 223,000 jobs were lost.  Maybe this is just the start of job losses...we'll have to wait and see.

I remember a year ago when the subprime mess first started...David sold all his stocks...but later changed his mind...rightfully so since the market recovered thoughout 2007.  Basically his fundamental thinking was ahead of the credit mess.  There were more signs of trouble toward the end of the year as the charts were starting to roll-over.  Unfortunately we didn't take this signal in time to completely get out.  I still think David's fundamental analysis about the exponentially growing global consumer class is right.   It may just take some time for the market to adjust to this thinking.  You have to remember financials are the ones having problems and they are also the ones running the markets.  When this credit situation starts to improve we should start to see things turning up too.  How long will it take???  That is the question.

[capricho]

Capricho,
Everything you say has merit and all indications appear you may be right, but I do not believe it will happen between now and mid 2009. We will all know in the fullness of time.  If it unfolds as you think I will know shortly and will make adjustments accordingly. Where do you live, in the US?

poli

Yes, in California, on the coast just outside Silicon Valley.

There will be an estimated 15 million US homeowners this year who will have their houses worth less than their mortgages.  The federal government can only do so much but drastic action on the scale of a New Deal intervention will be required to prevent a stampede of more forclosures, which will likely make US real estate worth even less. As more forclosures will certainly occur, lenders' balance sheets will only get worse, making it more difficult to lend more money. It is interesting that despite Bernanke's half point rate cut at the end of January mortgage loan rates have not come down. Banks are obviously using this spread to hoard cash, but in doing so they are offering no real incentive for buyers to get new loans--especially when real estate valuations are continuing to drop and lenders' standards have tightened. Homeowners, who are or who will be upside down and who cannot refinance to lower rates, will continue to use credit cards more and more to make everyday purchases. With jobs being eviscerated and with questionable ability to retire their revolving debt with obscene usury rates of 19%, US consumers will be increasingly defaulting on their credit cards, fueling yet a worsening liquidity crisis surely to come. And all of this is happening while inflation is threatening the consumer, while the dollar is being trounced, and while China is starting divest in greenbacks. It's a scary scenario that seems to be feeding upon itself in an unstoppable downward spiral. Bush's rebate incentive to jump start the economy is a joke and it will certainly not yield any tangible results other than to entice some foolish consumers to buy a new tv made in China.

[stocky]

Look at this way. A year or two back you were in the market looking to buy your first house. You see house prices gone real crazy and some very helpful mortgage ppl and banks telling you this is the best time to buy. Then you had two choices:

1. Buy house at crazy prices even though you could not really afford one.
2. Donot buy.

Now if the house prices are coming to some reasonable level then why all the doom and gloom. Why to support the inflated housing bubble at the expense of those who chose to live within their means. Fed's poor-sighted decision of lowering interest rates and flooding the market with money, only to see it going into commodities, energy and precious metals. The market will be in trouble unless it is given a free course to correct the credit induced excesses 'itself'.

[stocky]

I dont think their are 15 million underwater mortgages, I could be wrong but bet on Wall St to paint the picture so bleak that you as US Tax Payer pay your half or more pay check to pay for someone's else stupidity. This is incredibly big moral hazard to support those who chose to live beyond their means vs those who chose not to.

[tokyopua]

I dont know if it will work quite as well in this bear environment, but would love to see some FIRE trading again, like when the fire portfolio was everyone throwing out ideas and David running with the best of them.  Those were my biggest monthly gains.  Dunno, just hoping for a way to regain some of the money I lost this year.  People on this thread are still hoping for 30% return, I will be relieved just to break even again :-)

[berloga]

I second toky on that. Aside from the long term investment, I'd like to see some hot action with quick returns. Still believe in David's approach to hand pick only companies with sound fundamentals and perform an in-depth analysis, but at the same time, quick-trade to relieve pressure of the long-long-long wait.

Guys like me, with low investment figure, would prefer to risk a portion of their capital to the quick, market independent trades.

[pinoleropuro]

I agree with both of you tokyo and berloga.
because from others doing tech analysis on the market they are projecting that SPX could down to around the 10k level and still be on an uptrend market.
but going any lower on the market means going lower on our positions too and that is starting to hurt.
we need some swing trading to releive the presure from the main and mine. 
I keep asking David for another GOAM type trade, there's gotta be somethere out there.

[BigSully1]

here's a contrarian view, not that I necessarily agree with, just fyi

Economists See US Avoiding Recession
Tuesday March 11, 7:36 am ET
By Alex Veiga, AP Business Writer 
Economic Forecast Sees Prolonged Housing Woes but No Recession in 2008


LOS ANGELES (AP) -- The U.S. economy will suffer as the slumping housing market eats away at job creation and consumer spending, but the nation should avoid slipping into a recession this year, according to a new economic report.
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A recession could still happen though, if the credit crisis that has stifled the housing market deepens, preventing consumers from buying big-ticket items like cars and businesses from spending on equipment, according to the quarterly Anderson Forecast by the University of California at Los Angeles.

"We don't see that happening," said Edward Leamer, director and co-author of the forecast released Tuesday. "This is a tough call, but I will be very surprised if this thing actually precipitates into recession."

The forecast anticipates job growth remaining sluggish in 2008, with the U.S. unemployment rate rising to 5.5 percent by the end of the year. The February rate was 4.8 percent.

The forecast expects the economy to post gross domestic product growth of about 1.5 percent this year, rising to about 3 percent growth in 2009. GDP grew 2.2 percent in 2007, the weakest showing in five years.

The no-recession forecast runs counter to the outlook among many economists and financial pundits, who contend the economy has already started to shrink amid rising unemployment, job losses, record oil prices, and the lingering effects of the housing and credit crises.

The U.S. lost 63,000 payroll jobs last month, the second consecutive month of job losses. The last time the U.S. posted a two-month drop in payroll jobs was in 2003, when employers were still struggling through the aftermath of the 2001 recession.

Leamer said the nation may be experiencing negative economic growth in the current quarter. Economists generally look for at least two consecutive quarters of negative growth before they make a recession determination.

The biggest risk of recession comes from the credit crisis that emerged last year as home values began to tumble and the number of mortgage defaults and foreclosures soared, the economist said.

Major financial institutions were racked by credit losses as the value of securities backed by mortgages sank, causing the traditional outlet through which banks borrow money to seize up.

The credit woes have deepened the housing slump, making it harder for would-be homeowners to borrow money and for homeowners to refinance. But consumer spending, while weakened, hasn't declined severely due to credit problems, Leamer notes.

"Americans are not as wealthy as they thought they were, and that's going to factor into consumer spending going forward, but it doesn't cause a recession because consumers all realize their lack of wealth at different points in time," he said.

Another potential factor in a recession would be widespread job losses. Leamer, who has maintained a no-recession forecast in recent quarters, said that's not likely.

"So far the labor markets are slowing but not collapsing," he said.

The forecast calls for the nation's housing doldrums to continue "for a long time," Leamer said.

He expects housing starts, which fell from a high of 2.3 million units in January 2006 to 1 million units this January, to bottom out in the summer.

[Garoh]

Hi David
You've been doing a great work , don't stop ...
If you have losing trades on the other hand you had many winning trades , don't let te market beat you down 
I'm sure you we'll finish 2008 with more than 40% return .
I spent all the night yesterday looking at many Technical indicators and market's indexes charts .Guess what !! I found out that we'er all most reached a bottom by friday's close 

Next week could be the end of these losses and we'll be heading north for sure . Just hang on and keep your good work up 
Frankly, I've never got a loss with any of your trades , I always tried to get in at the right time ..

Be strong David and we'er gonna see green numbers soon 

Here we go a strong move