Market Direction

[Horrible Player]

Trying to get a feel from everyone. Where do you see the general market trend? I feel on a technical basis we will make a run for the 990 to 960 mark on the S&P. We do not have volume holding the market up right now and profit taking is on the horizon. Thoughts?

Scotty O

[Ray Zee]

for the market to go up alot more we need some earth shaking news. the problem might be that we really do get earth shaking news.

[Wildbill]

I think it will be tough to see a big run up because I think a lot of fund managers will be protecting gains going into year-end. With the tough market of the last few years these guys need to get paid and as long as the market stays where it is now most are in for their first good payday in 3 years. That caution has to be some of the reason for the tepid levels of trading and the general lack of direction up or down right now. I think window dressing might become prevalent in mid December and I expect a nice start to 2004. After that it looks quite tenuous. Realistically I think the biggest factor from now until about April will be the GDP numbers, the dollar, the price of oil/commodities, and the state of employment. After that we will get into election year issues and I honestly don't know what to make of that. Once the Dems nominee is clear, we might become a bit subject to polling shocks so next year could be the tough one. For now I would suggest just sitting back and not going out too much on a limb, but be sure to be in the market at year-end and early 04.

[Copernicus]

The 52 week futures for all three indexes took a big jump, so the big money is betting on a good year. If it were a more moderate jump I would think it was just hedging of conservative funds not wanting to miss an upside tick, but this jump was huge (more than 10%).

[Horrible Player]

Watch it this week. The market will make a run for the highs on light volume. This is a sign of turn around in the market. If you want to get short, end of Friday/Monday next week would be a great time.

dont forget Gold. Good buys by weeks end.

[GeorgeF]

I am not good at predicting the future so let me describe the present. Below is a link to a chart of a plain vanilla international bond fund GIM vs SP500. I believe what is being called a bull market is really weakness in the US dollar not strength in stocks. Also note that GIM payes at least double the 'stock' dividend.

http://finance.yahoo.com/q/bc?s=GIM&t=1y&l=on&z=m&q=l&c=^SPX

As to the future, I am currently 3% cash US$, 50% international bond exchange traded funds with the balance in cash. BRK, ZMH and DHB are my largest positions. I also own some BEARX incase there is real trouble.

[adios]

How low do you see the US $ going?

[Wildbill]

I can't see how anyone could say anywhere but down. Everyone is expecting it to go down because the US government seems to be forcing it down. Even more important is that the cycle is down and almost every currency seems to do nothing these days but overshoot. I think this dollar is already undervalued against the Euro, after all getting 1% extra on your interest rate can only account for so much adjustment. Europeans aren't clamoring to buy more American products for cheap and Americans weren't exactly buying up European stuff that much even when the Euro was down in the 85 cent range. The big differential in economic conditions would suggest more devaluation of the dollar won't bring about a positive rebalancing so why does it keep going? My guess is that it isn't really a economics driven move but more a speculative one. The masses of Europe are losing money investing in the US simply because of exchange rates and so they stop investing. The cycle just feeds on itself. Once again it can't be because Europeans see lots of great values elsewhere in Europe, I think it is just driven right now by momentum and maybe somewhat the fact that money can't really be bet effectively against Asian currencies as long as most of them have rigged rules that distort true values.

[GeorgeF]

The short answer is I have no idea. Righ now it looks like Iraq is going to get increasingly expensive and the Bush Admin is attempting to buy votes with expensive domestic programs. On the other hand other nations have their own problems.

One thing I would point out is if you earn a salary in US$ and will receive a pension in US$ it can be argued that your cash should be in foreign currencies to diversify your risk.

[adios]

George,

I try to arrive at thresholds where something is undervalued and overvalued. Wildbill's assertion that the value of the US $ may be a momentum thing not necessarily based on the real value seems credible to me. However, I'm certainly no expert on currencies and I don't really feel all that confident in setting the thresholds of undervalued and overvalued for currencies. You've alluded to the US current accounts deficit when discussing the size of the budget deficit i.e. an increase in the US budget deficit leads to a bigger current accounts deficit. However, the other side of the coin is that our current accounts deficit does indicate a willingness and desire to invest in US assets which is something else wildbill alluded to I believe. I'm just not all that comfortable evaluating the situation accurately. Just looking to gain some knowledge and feel more comfortable /images/graemlins/smile.gif.

adios

[Wildbill]

The issue that will have to be solved is if the Europeans are truly taking their money out because of worries about the value of the dollar, where are they going to put that money? Any economy's investment opportunities are driven by economic growth and that just isn't there in Europe right now, nor will it be coming soon. The real estate markets in almost all of Europe are overheating. The bond market is primed to get killed as the ECB and the BOE are set to start raising rates before the US. Maybe, just maybe, that will actually cut short a runup in long-term rates, but seems unlikely. So where does the money go?

[adios]

I would think into US based assets to be honest. Perhaps emerging markets but golly gee whiz the risk-reward doesn't seem to be there IMO regarding emerging market assets especially bonds.