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Wall Street Needs Medication
Author: Ravi Prakash (info)
Website: http://www.optionstradinglessons.com/
Posted: November 19th, 2007 at 10:29 am EST
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I wonder what non-traders think (majority of the population) when they see or hear the news; “The Market is down 2% because of credit and sub-prime fears”, then the next day it is “The Market is up 2% because credit and sub-prime problems are not that bad”. I can take a guess as to their thoughts - “Will these crazy people decide once and for all, what the problem really is”. I do not blame them for thinking that. I think the financial press should take a break from rotating the the same story every alternate day. It is getting rather stale. They should take a break and chew on some pills!
It has made for an interesting roller coaster week though. I sense that sellers are soon going to run out of reasons to sell, and buyers are soon going to start ignoring the same old bleak news. Bottom line - you can make more money in the Stock Market than you can in fixed income and CDs. That will attract the money parked on the side lines sooner rather than later. Nobody wants to really miss the Holiday rally if and when it comes to visit Wall Street.
The other thing I do from time to time is take notes on what I see going on in consumer spending in my neck of the woods. I also talk to a friend who runs a great restaurant and is a savvy business man. My goal is to identify a shift in the local economy and habits. I trust my own research, which although unscientific is better than the made up numbers the government spews out on inflation. My first observation is that people are still spending money like ever before. Lots of SUV’s, Hummers and Lexus on the road. People still fill up their tanks to the full line with gas, no half tanks. My friend says people are still eating out as usual. He wishes the competition in his business was not so stiff. His other complaint was that it is hard to find good help. Employment in this area remains strong. Even real estate seems to be doing ok, not great but ok. My conclusion for my area is that the economy is moving along fine with no indications of a recession.
Having said that, there are still dangers of a slow down at the national level. If banks and other lenders are experiencing losses in the billions, then at least on paper they have that much less money to lend. So the chances are they will charge more interest to lend their diminishing cash to compensate for the current risk that exists. So even if the Feds keep dropping rates, it may not really help business owners who borrow short term cash. This translates to a slow down in business growth and expansion. I see employment as the key here. As long as unemployment remains low at the current 4.7% level, things will be fine. Why? As long as people get their regular salaries, bills get paid, they eat out and go on vacations. The economic cycle continues. As long as people are gainfully employed, they will be willing to borrow to buy more “Stuff”.
Oil remains center stage in spite of its recent drop. Part of the reason being that OPEC might pump more oil. At the same time they insist that there is enough crude oil, and the problem lies in the refining capacity or lack thereof. I still see oil being strong right now. One thing that would bring oil down big time would be if the US and Iran came to an understanding over their nuclear energy plans and eliminated the possibility of war. Barring that resolution on-going tensions between the U.S. and Iran (and China and Russia who disagree with the U.S. on sanctions) will help keep oil prices high for the immediate future.
I wish you all a pleasant and relaxing Thanksgiving Holiday.
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