Wednesday, August 05, 2009
Those of you who are my clients or know me can attest to the fact that I have no idea where the market is headed in the short term, though I do have opinions about it. Currently I lack the confidence that is now so present in so many publications. I don't know if the market is going to soar another 50% or drop 50%, though if I had to choose only one......it would be the latter. I think stocks are overvalued given the structural problems in the economy.....but Mr. Market doesn't listen to me (and thats probably a good thing). There is no lack of doomsday prognosticators out there, yet they actually seem to be making logical extrapolations. Take for example the article linked to above, it gives the following five reasons stocks "could" crash:
1. High Frequency Trading Programs driving trading volume
2. Market volume declined most since 1989
3. 13 million Americans exhaust unemployment by December 2009
4. Rally is a short squeeze, nothing more
5. The $1 Quadrillion time bomb....derivatives
The last one is perhaps the scariest. I'm not going to talk about each of these market crash scenarios, you can just read the article, but its the last one that really makes my skin crawl. The chart in this post shows the exposure our American banks have to derivatives.....it is downright stomach churning.
Am I a bull or bear.........I don't make those distinctions. I simply think risk/reward is disappearing in stocks at these levels.
Scott Dauenhauer CFP, MSFP, AIF