"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey
I was watching a re-run of the movie "My Cousin Vinny" a few days ago, and Joe Pesci's (Vincent Gambini) opening comments are how we should view the advice coming from Wall Street and their stock promoters.
Here is the You-Tube video clip.
For over a year, I have warned investors of the dangers lurking as a result of the housing bubble, and all of the fallout that generally follows. While I was waving the red danger flag, Wall Street and their stock promoters were countering with comments like;
-Goldilocks Economy
-Soft Landing
-The Resilient Consumer
-"Points above new all-time high" on your TV screen.
-Valuation models suggest stocks are too cheap to pass up at these levels.
The one that takes the cake is "CNBC's- Erin Burnett" reading from the teleprompter saying "move over Goldilocks- Economic Nirvana", along with Jim Cramer telling you to buy.
Here is a video of CNBC's Erin Burnett calling Apple Computer the s**t stock.
Was this just a Freudian slip?
In any event, now that the lambs have been led to slaughter, the mood and tone for financial assets has change dramatically. A weekend story in Barron's suggested that either Fannie Mae or Freddie Mac would go bankrupt. Almost on cue, the next rumor that broke was that Bear Stearns was struggling with liquidity issues.
Yesterday's test of the January lows came close as the Dow closed a little over 100 points from the January lows while the S&P traded down to 1272, two points shy of the 1270 low. The NASDAQ broke below the lows set in January.
Whether yesterdays re-test was successful or not will be a topic for discussion for several days. We believe dollar cost averaging in at various entry points Makes the most sense. These entry points are;
15%= DJIA 12,041- 1/3rd purchase
20%= DJIA 11,332- 1/3rd purchase
25%= DJIA 10,624- 1/3rd purchase
This morning the major market indexes opened higher on what appears to be a short covering rally after the Fed expanded its securities lending program that allows "the bond markets to swap mortgage-backed securities they can't currently sell for highly liquid Treasury’s that they can."
I've always held the opinion that potential solutions to the crisis were aggressively being worked on. This is why I came up with the slogan;
"Throughout our history, the track record is clear. Solutions to major problems always appear".
This is why we believe adding to underweighted portfolios as the market declines is the smart thing to do. It will still take several weeks before the all-clear signal is sounded, but buying during periods of maximum pessimism is when the big bucks are eventually made.
If a bailout plan by the Federal Housing Administration (FHA) is announced where the US Government will give the ok for FHA to buy up to 1 million mortgages to help prevent foreclosures, this will probably be the beginning of the end of the mortgage crisis.
The major negative in the markets right now is the price of oil. Crude traded up $1.52 this morning to $109.42/bbl despite higher inventories.
I have a question. Why isn't one or several of our political leaders screaming bloody murder on the airwaves? If oil prices are leaping because of hedge funds or speculators, why is there a call for an SEC investigation?
If inventories are high, and not a problem, why does President Bush want Saudi Arabia and OPEC to increase production?
Here's a conflicting comment. The IEA cut is world oil demand forecast today, but said high oil prices are here to stay.
Go back to Joe Pesci's (Vincent Gambini) opening comments above, and you'll see what I think.
