Monday, January 21, 2008

More Trouble Ahead

I'm back from a week long vacation. It was a tough week to miss as the markets were dropping rapidly. It looks like there is more ahead. Overseas markets are dropping hard today on the potential of a U.S. recession. Although I haven't seen that much negative data, I became convinced things are bad when Bush came out with the economic stimulus. They wouldn't do that if things weren't getting tough. The question now is what will this do to stocks? A massive decline like 2000-2002 is unlikely as stocks never got nearly as high. Some commentary I've read is pointing more toward something like 1990-91.

Although there are a lot of attractive stocks out there, there is no use in fighting the tape right now. I've been holding and adding to short positions, while limiting exposure to the long side. There are still companies performing well (IBM, GE announced solid earnings), but that doesn't mean that they will be spared from declining some. The key now is waiting out the declines for awhile. We can use this time to find some great deals on solid companies. I wouldn't be in any hurry to buy just yet though.

Earnings should give us the best barometer in the coming weeks. The Fed has said that they are ready to cut rates aggressively, and that may help things.

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