Assessing the situation

Hi Dad, this is a blog. This blog is only priviledged to be seen by you and I at this point. You can can contribute to the blog. I try and make it a point to read and pay attention to the markets more now then every b/c I feel we are witnessing history. Like a soap opera there are some interesting plots playing out right now. 158 yr old Banks (Lehman) are going in bankrupt, Bear and Merrill as well. All these banks had one thing in common they were NOT diversified, all were investment/trading trading banks and had no exposure to the retail deposits like our checking accounts. They were also aggressively leveraged. Lehman was geered 30-1. 30 dollars of dept to every 1 dollar of firm assests, pretty insane! You can see the streets concern for Investment banks like these by watching the stock prices of Morgan Stanley (MSCO) or Goldman Sachs (GS) both with no retail arm. These banks know it and both have mentioned that they are open to acquiring a retail banking ("Morgan Stanley's Mack Said to Consider Merger With Wachovia"). What's more disconcerting is that the credit crunch has floated over to more retail based firms like AIG ($70 to $4 in a yr) and Wachovia ($50 to $9 in a yr).

Enter the FED and TREASURY stage right: "holy intervention batman!"... Wait, a newswire just came through, the FED just bailed out Ford motor company. They wanted to diversify their portfolio... just kidding. But the Govie's interaction with market place is extremely unprecidented. Quick recap, the Treasury has now bailed AIG (85 billion to own 80%) and Bear Stearns, nationalized Fannie and Freddy, bought up some toxic dept, while the FED continuosly injects 10s of billions into the credit markets overnight, go back a couple months the fed cut rates without warning and outside of usually schedule (what was interesting is that the following day it hit the press that a Society General trader was able to unload a massive futures trade, 5 billion $ losser, If the market did not prop up, a trade like that could of created a panic! Hum- coinsidence?) And for the latest in good old govie intervention about 4hrs ago the fed annouced they will not allow short selling on a selected list of stocks. I don't want to get preachy - so I'll say this and move on. I think the FED and regulation (not the lack of it) is the reason why we are even in this mess. I can elaborate later... Now they have socialized this countries debt and in doing so are creating more debt. There is no such thing as a free lunch. There is a chance some of us are going to have to pickup someone else tab.

Ok... 0n to your portfolio vs the market
The broad equity market is down 20% over the past yr 7.61% over the past 5 days.
Your mutual funds 25% and 6.43% over the past 5 days.

I'll fax you over some report or hopefully attach them to blog...

For the short term the market is very excitable and nervious. Question has become is this going to be a recession or is this a great buying opportunity? I feel based on the actions of the Fed, the fact that in terms of % of dollars to lost GDP this is the largest bubble in record history, and the likelyhood that more companies may fail... I think the downside is still greater.

I going to throw a few projections at the wall for the very short term... The market is emotional (maybe at some points irrational). I would think when that happens certain techical indicators (price oriented) become useful. The fundamentalist, the values guy, can't come up with an accurate value in this market. How can you come up with an accurate value for Google when you can't even come up with a how the underline economy is going to grow. So will look at support and resistance, the most basic of basis. The are pervious highs (peak prices) and lows (troughs) to determine were price would tend to gravitate. Based on that:

Tomorrow the S&P 500 should be down to 1135 or 1.7%. With next solid resistance is 1060 or 8.1%.

On friday the S&P should get knocked down again and probibly harder, with this much uncertianty no one is going to want to hold a position they don't have to going into the weekend. Let us not forget Lehman happened last weekend.

Stop loss: If the market closes tomorrow in the upper range (1182-1210) of the previous trading then I would consider my view point up above wrong...

The plays:
ETFs (Exchange Traded Funds- trade just like an equity, just like buying a stock, same fees and everything...):

1) DXD - Replicates the price movement of selling the Dow x2. (For every dollar down in the DOW you make 2)
2) SDS - Selling the S&P x2
3) DGP - Buy a gold fund x2. Flight to quality... This on was already up 20% today but if I had to put a target on this on 15% from today close before it hits its first real resistant (22.80ish)

So we'll see...

Going to bed. Will add more soon. Let me know how you would like this to evovle.