Bits:
Gene Inger's Daily Briefing. . . . for Friday, October 19, 2007:
From www.ingerletter.com
Our positional attitude in trading most recently dates from last Thursday's Dec. S&P 1585 level short-sale
excessive number of shorts out there at this time; who may actually be correct...
with lots of shorts it takes the time to get something going on the downside...
we've suggested a 'Chinese Water Torture' characteristic to describe how this all evolves. (That's a salami decline; money carved by the slice; but in time they get the weenie.)
In the final analysis; no real fundamental reason for optimism here, so clearly it is (in our view) not time to worry about 'multiple expansion' silliness, but rather worry about 'multiple contractions' to catch-down with where next year's reality is going to take us. Maybe the world will hold-up until China's Olympics; but if that occurs it won't be from higher plateaus, but from lower levels over time. In this investing 'conduit' for months, we've correlated this repeatedly with one of history's more significant market events: 'the Panic of 1907', and JP Morgan's actions then.
Bottom line: signs as we interpret them, included the following bullet points:
China ordered increased bank reserves; this was not generally reported;
Net capital inflows constricted considerably; denies foreign buying concepts;
Nomura Securities acknowledges subprime exposure; lays-off 20% US staff;
Cambridge Investors limits fund 'redemptions' until next Summer (harbinger?);
Turkey / Iraq crisis and Oil prices; gets attention; not the only related issue;
Overseas, not domestic, demand is impacting Oil prices rather than the above;
Russia / Iran alliance would be a major folly by Putin, and genuine challenge;
Moral hazard of SIV fund situation smacks of Enron; must be monitored;
Sec'y. Paulson finally stopped saying everything's fine, and was candid;
Transparency may sober market's further break; but reality will be confronted;
Earnings reports are mixed; we view good news selling as signs of faltering;
Market coming-off repeated bearish reversals; new highs were unconfirmed;
Murky financial structures have less liquidity than 'advertised'; limited cushion;
Most major banks have far more derivative holdings than generally realized;
Fed action stopped systemic freezing; wasn't expected to solve credit crunch;
Beige Book affirms virtually everything we've addressed; few want to admit it;
British banks are the latest asking for exceptions from the Fed (about capital);
All rallies will be false and abortive for now; as the market should work lower.
Our positional attitude in trading most recently dates from last Thursday's Dec. S&P 1585 level short-sale; where we thought some bold players would embrace positions intended to protect against a decline from that point, rolling-forward past Expiration.
Summary: I reiterate, the market still misses something: consumption as a percent of GDP already is lower. I noted interbank rates suggested precisely this for weeks as was ignored by virtually all analysts at least in public. Angst is visible; even the Fed's.
What we think we're looking at are folks wanting to lighten-up on any available rallies.
