Correction almost done
8-16-07: For the exception of the credit industry, the overall economical fundumentals remains strong. In our opinion, the correction is almost done. The Feds will likely cut short term interest rate at their next meeeting. We predict they will need to cut at least 50 basis points. The market should then stabilize and possibly rally. All these talk about the economy going into recession is still premature. In these scary times, the best place to put your money is in cash or stocks such as GE, McDonalds (MCD), Procter and Gamble (PG), Microsoft (MSFT) and other defensive stocks. These companies does not need to borrow as they have a healthy cash balance. We see the DOW hitting 12,400-12,500 before things stabilize. For now we wait and look for opportunities. Stay away from any company that needs credit or are directly in the lending industry. This sector is a mess.
Comments
Dow hit less than 12,500 on 08/16.
Did you find opportunities in those few minutes?
If you don't mind me asking this, where do we go now in your opinion, Dow 16k?
How do I know things stabilized. It stabilizes in less than fifteen minutes sometimes.
------------Response-----
Our opinion is the DOW will end the year at around 13,500. Indeed, there were a lot of opportunities on 8/16, but it happened so fast that we missed the opportunities to buy CFC and others at rock bottom price. There will be other opportunities. CFC will eventually be acquired by BAC as we earlier predicted. The infusion of $2 billion from BAC is a sure signal. Moreover, the government will not let CFC go out of business as it will cost too much economically.
-ibooyah
Posted by: Tushar | August 21, 2007 04:06 PM
Thanks for promt and quick reply. I appreciate you taking time and open your thoughts. I also think it happened so fast to miss opportunities. I thought we were headed for at least 20% correction on all major indexes and got caught shorting the indices on that day! Well, ever since then either we are sideways or up on a low volume so far for this week ending on 08/24/07; up about 6%. Would you be kind to show what you think on this situation I am in? Should I wait for a next pull back or just take up the losses now. I meant to ask, do you think in the next month or so we will probably re test the lows that were on 08/16 on all indexes?
Posted by: Tushar | August 24, 2007 07:52 AM
Hello Tushar:
We don't know your situation fully so we cannot comment on the best course of action to take in regards to your circumstances.
In respect to where the market is headed, we highly doubt the index will retest the low on 8/16. There is couple of reasons for this. First, we believed the Feds will lower interest rate on their next meeting. This will spark a short rally.
Secondly, the mortgage industry is finally facing the facts and tightening their practices. This is a good thing as credit was way too easy to come by in the last 5 years. We also expect to see major mergers in the mortgage sector. Don't be surprise to see companies like Countrywide being acquired soon.
In retrospect, on 8/16, there were fear and panic so everyone sold without giving it much thought. Now that investors have some time to really think things through, we doubt it will hit that low level in the near future.
Best of luck.
Posted by: ibooyah | August 24, 2007 10:56 PM