Sunday, March 20, 2005

Still Falling....

Two weeks ago I made a warning about the US Markets, saying that they were overvalued. This short-term prediction was confirmed. The Dow and the NAZ are both off their highs and the 10 Year T-bill is higher. The US$ has lost value to every major currency but not very dramatically and the oil prices are going higher especially gas. The fundamentals of the US economy just are not there, the question is not when the crisis is going to occur but where will first occur.

Here are a couple of possibilities…

  1. Increased prices at the pump cause consumer spending to fall.
  2. The housing market will slump as the interest rates rise. The tipping point is difficult to determine, but when it occurs all hell will break lose. I’ll go out on a limb and say that it will happen this year. Today while looking at the Burlington Free Press I notices that a condo near my house sold for over $200,000. That is just insane…Vermont is not NYC.
  3. The ever present threat of terrorism and some international crisis could cause a real crisis of confidence.
  4. Long Term Capital Management was a small firm in the late 1990’s that almost destroyed the US financial system using all kinds of fancy investment vehicles that it sold to all kinds of…suckers. There are all kinds of firms that are struggling to make ends meet and they will do anything to keep the game going. Somewhere out in the real world is a trader or money manager who is invest a large part of a portfolio in something that he does not understand…and his risk is increasing.
  5. Increasing interest rates will eventually create a problem for all of us. The real problem is that the rise of interest rates will not satisfy the foreign investors and the US$ falls as interest rates are jacked up even higher. This is the nightmare scenario and will probably not occur.

The markets are still heading south...

March 21, 2005. It looks as it GM is going to cause a fair amount of chaos in the market. The stock is taking a pounding and the layoffs are being announced. Here is a link to their page on Yahoo. They are in debt 300 Billion...They will never pay this money back. Can anyone say bankruptacy...just who owns their debt. Those insitutions are screwed.


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