The markets are becoming more volatile. Why? Three issues need to be resolved.
1. The economy may be heading for a recession. The above chart about the growth of retail sales is really worrisome. (Click to enlarge the graph). There is nothing terrible about a recession. We will come out of it. The unknown is what kind of damage it will create.
2. The credit crunch caused by the subprime lending is unfolding. No doubt about it. A credit crunch is bad news for the banking sector in the near term. Eventually the Fed will lower aggressively interest rates (as Greenspan did after the 2001 market debacle) and we will enjoy another bubble.
3. Another excess being brought under control is the yen carry trade. I talked about it in another blog. The yen will keep strengthening as Japanese short-term interest rates continue rising. Stocks and commodities will have to be sold to repay the yen loans.
We are witnessing the unfolding of three major crises. I wrote several times here that the market is going to reflect these uncertainties. It looked like a top and walked like a top. It must be a top. I have been talking about it since December 2006 in my service.
Bottom line: be careful. In my The Peter Dag Portfolio I have suggested how to use my indicators.
More on The Peter Dag Portfolio on http://www.peterdag.com/.
George Dagnino, PhD Editor, The Peter Dag Portfolio Since 1977
1 comment:
A volatile stock market (finally), problems in the transportation and retail sectors, slowing economy...if this all plays out as it seems it might, do you think this presages a drop in interest rates on the part of the Fed?
Bill Lawrence, Washington, DC
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