Not much happening...

...this week. Once again, a lot of vol., but not much actual movement. We've seen this for about a month now, and I suspect we will see a fair bit more.

The market reminds me a lot of the period after the 1987 crash. In both cases we had extreme worry/fear on Wall Street, but good market valuation. I find a really good fear index is the performance of the financial sector stocks. If they are going down, wall streeters fear for their own jobs (rightly so) . As most people know, most of the decline in the S&P 500 is due to the financial sector. I doubt this will go away any time soon. It's not just a question of unknown losses from subprime and LBO paper. The big profit drivers for the street, debt packaging and M&A, are down for the count. I bet volumes will be a quarter of what they were (might even be zero for awhile). Gloomy stuff.

Now you might say "So what? That's just the street, not the real world." Well, the wall streeters are the salesmen for the market. If the salesmen are demoralized, it's unlikely that we will get much interest from the buyers. I know it sounds cynical, but we need people with a vested interest in a bull market talking it up and selling it.

OTOH, the market has real value. Click on the chart for the current state of the Fed Model. See previous posts for an explanation of what this is. We are certainly in the value portion of the spectrum. Another thing: the US dollar is finally beginning to fall against the Asian exporters. This will be highly beneficial for big cap multinat's, esp. GE, BA, and a lot of our commodity favorites.


The result of all this will probably be more of the same. I'm hoping that we get a real capitulation by the longs. This would probably happen if some of rumored losses among the big houses turn out to be real. In the meantime, just wait it out. I'm still hedged with S&P futures. I also wrote a few S&P calls (Sep) to play the enormous time decay right now.

I took off the cocoa position. The new crop looks quite good. I still like the market longer term, but it may have to wait another year.