Overblown economical hype

It seems like over the last few days investors have lost their minds. the SP500 is up more then 7% in a week, on mediocre economic news that point to the fact that the recession is not as bad as previously expected. Thank god for this mornings Bernanke testimony, to pour some cold water on the lemings.
Of note the SP500 pushed past the 950 mark for about an hour before getting slammed down again. Analysts are paying close attention to this number, as most predict that this is where the summer time rally will stall. There is a lot of money tied to the options around this number, so it will be very interesting to see just who will win this battle. A piece of advice to the average investor, sometimes its wise to pass.


- Arthur Smelyansky

A blow up is just around the corner

CIT group, which lends money to retailers, is on a verge of bankruptcy. Should it fail, it will be the largest bank failure ever, with more then 70 billion in assets. The company has already been rejected for a bailout, and the clock is ticking. If you think the credit markets froze when Lehman brothers failed, you have seen nothing yet.
This has the potential to devastate the whole economy.

There is a last minute effort to convert their debt into equity, however with mixed stories of exactly how much they need and by when is making this last minute attempt very difficult.

The fall out from this failure is going to be huge, should CIT file for chapter 11 bankruptcy, look for the financial and retail sectors to really take it on the chin the next day.


BTW and on top of this we are facing the sp950 hurdle, which many analysts are predicting is where the market will end the latest rally.
- Arthur Smelyansky

Investors must be pretty desperate when they bid the market up 2% on news that the industrial production didn't cut back output as much as initially expected. It seems like everyone is trying to catch the bottom of the economy, so they can ride the recovery to the top. The problem is catching a bottom is like catching a butcher knife thats falling by the blade. Lots of blood will be shed, and many will regret it later.

My advise for now, is to buy some Treasury Inflation Protected Securities. Because if history taught us anything,is that when interest rates are at an all time low, inflation is bound to spike at some point.

- Arthur Smelyansky D.M.S.

buyer beware

The equity markets are up today, just before companies start to announce their earnings for the last quarter. Investors seem very optimistic and are betting for better then expected results, despite what the economic data has been showing. It is very easy to forget the numbers and hope for a miracle, however unlike some earnings reports, economic data is hard to fudge. The economy still has some painful months ahead, and if my research is right, the banks are headed for another round of painful write offs caused by major defaults in the commercial loans/mortgages sector.


- Arthur Smelyansky