Last time I posted a headline that I felt like a stock market meltdown was just around the corner was April 11, 2006 ("Anyone feel like a good crash"). Yes, HP was laughed at there, as the market was setting new fresh highs, confidence was in the air.
Well, on April 11, the NASDAQ closed at 2310. Today it's at 2140, or down 8%. Not a crash, but a big bear hit for sure. Then look at almost any stock that has anything to do with real estate or the consumer and there are crashes all around. Sell in May and Go Away, yet again.
Well, now it's time for a real crash. The Housing ATM is closed, the consumer is rapidly sobering up, GDP is falling, the dollar is tanking, inflation is roaring, restaurant and retail stocks are getting killed, REIC stocks keep going south, consumer and CEO confidence has plummeted, the homebuilder index is drifting to suicidal, the Fed doesn't look like it's done, gas prices are still high and going higher, and last week's housing news and even internal NAR report scared an entire nation of homeowners.
The US economy is rolling over, it's fallen off of that cliff we all knew it would one day. There's only so much debt that can be hoisted, then it contracts, sometimes wickedly. In addition, millions are already feeling the Bubble pain, with realtors, mortgage brokers, appraisers, title agents, builders etc not getting paid (thus not shopping, not dining out, not buying houses...)
The crash might come suddenly, or like the QQQ's 70% freefall 2001 - 2003, it could be a death by a thousand cuts. Something like Iran blowing up (possibly this week) can really set it off, and something like a Fed rate CUT could confuse it even more. But we're going down, not up.
I'm in 5.05% US$ cash, COP options and now 9 stocks (mainly retailers) on the short side via Jan '07 puts, five that are up over 100% already. And I sleep well at night, although I worry about the country and what's to come.
Finally, I think people around the world are now realizing how illiquid their housing assets are, and how liquid their stock investments can be. And now that they're going into hunker down mode, and raising cash, they can hit the sell button right quick.
August 28, 2006
Posted by blogger at 8/28/2006