By now you have all seen the results of "The Cheating Culture" break Hank Aaron's all-time homerun record last night. Barry Bonds (who is a great hitter) hit homerun number 756 passing Hammering Hank. If you want to see what baseball players are suppose to look like, watch ESPN's "The Bronx is Burning" (Tuesday's 10 pm EST) and compare the size of players to today's. It's not even close.
Since we're on the subject of cheaters, a friend of mine just returned from Martha's Vineyard and Cape cod (the summer hangout for Wall Street big shots), and he said he has never seen so many Obama bumper stickers in his life. Obama for president? Give me a break. Don't you know that Abraham Lincoln and George Washington are rolling over in their graves?
The volatility in the markets has been extreme as the new LBO crowd, aka... private equity is finding it tough to find buyers to finance their debt. In addition, hedge funds are liquidating profitable stock positions to make up for losses they incurred in the sub-prime LDO markets.
In my August 6th post I said that there were no better contrarian indicators than the front covers of popular financial publications. Just before the housing market tanked, a June 2005 Time Magazine cover boldly stated "Why we are going gaga over real estate".
Now, Time is at it again as the August 13, 2007 issue is entitled, "Bonfire of the Builders". On Monday I said if you are looking for a way to invest in real estate and get rich, I would focus on buying banks, lenders, REIT's, and homebuilders.
The banks and lenders have rallied sharply since Monday. No, I don't think you have missed the boat. I think there will be some more opportunities to begin building positions soon.
As for the markets, I feel that the deterioration in home values is beginning to have a psychological effect on consumers which could prompt a trend change in the stock market. This being said, I am still expecting one more run to the highs on the major market indexes before this occurs.
Today we saw yet another consumer darling bite the dust as Polo Ralph Lauren (RL) turned in disappointing first-quarter profits, and said that second-quarter would be weaker than expected.
Clearly the evidence of slowing consumer spending increases the odds of a recession in the months ahead. I have favored a defensive approach toward equities for quite some time.
Yesterday, the Fed left rates unchanged. No surprise here. The market decline (6%) thus far does not warrant any intervention, plus the Fed remains preoccupied with inflation. In addition, the ongoing decline in the dollar would seem to make an interest rate cut unnecessary.
Support on the S&P 500 is in the 1450 to 1460 range, with longer-term support near the March lows at 1375. Resistance remains in the 1480 to 1490 range. At this point, I believe that risks remain high, and a defensive approach to the markets is warranted.
For now, "It Ain't Over Til It's Over".
