Griffin Account Talk

[Griffin]

I'm going to post this article in it's entirety here, because I think this sums up the situation very well. What I find real interesting is the now 100% rate cut guarantee. That is not good, because it puts everyone on one side. Becuase there is so much assumption on this (and since the no cut would cause a negative effect), I am almost definitely going to be in a CP position that day - in fact, I may make that move today.

FOMC OCT 2007 Dilemma: Rate Cut Versus Dollar Crisis

We do not have the final numbers in for today, but as of yesterday the 30-day FED FUND FUTURES contract wasn't deciding IF the FOMC would cut rates. It showed a 100% chance of a 25 basis-point rate cut for FED FUNDS from 4.75% to 4.50%. But it showed a 14% chance that we'd see a 50 basis-point on FED FUNDS down to 4.25%. We'll know later tonight the probability of this today but it looks like that is now a 16% chance during trading hours.
But as our rates fall we run the risk of creating a further slide in the US greenback into a near crisis level. That may be extreme wording, but it isn't extreme from where we were. Late today, the Euro cost $1.4362 per Euro and the US Dollar gets weaker more days than it doesn't. In January this was briefly under $1.30 and two years ago we were under $1.20.
The US Dollar and the Canadian Dollar now appear to be inverted with $1 US equaling C$0.9622. $1 US now equals 114.29 Japanese Yen, although that reading hasn't gone to hell in a hand basket like the US Dollar versus Canadian Dollars or Euros. When it comes to many in the U.s. demanding that China decouple its strict peg to the U.S. Dollar, all that can be said is "be careful what you wish for, you might get it."
The U.S. consumer is stretched and it sure seems like the expected holiday sales may not come as well as even the revised retail associations are predicting. real estate is still in the tube and we haven't even reached the new mortgage rolls and resets coming in Jan-Feb 2008. Inflation is dependent upon your review of whether or not we live in a nominal CPI world that includes food, energy, medicine, and insurance, or if we live in a core-CPI world that doesn't include those prices.
The meeting decision will appropriately come on October 31, and the decision will hide behind a ghost mask until 2:15 PM EST on Halloween. Hopefully November 1 being the Day of the Dead will only apply to Mexico's celebration honoring dead family and friends.
It is the belief from 24/7 Wall St. that we have two more rate cuts coming with the potential for three more cuts, but it is our belief that the cuts from here on out will be in 25 basis-point increments barring anything much more drastic than we've already seen.
The brokerage firm earnings were not all good and we won't see the real effects from the 50 basis point cut already seen for another quarter. Property prices have to still come down, and some more housing and car repos still have to get worked out. Using the home as a piggy bank has ended and mortgage qualifications have tightened severely.
But there is some more that has to work itself out. We have yet to see any real bank or lending institution failures outside of these leveraged mortgage brokers that were mere one hit wonders. More pain is coming, but the FOMC has to take charge and do measured cuts from here to a true equilibrium rather than a big overshoot too fast. Otherwise we'll all be looking at our savings in U.S. Pesos.
Jon C. Ogg
October 26, 2007

 

[lesta993]

G, excuse my poor memory. Does CP stand for Conservative Position? Such as the G fund.

Thanks, Dave

 

[nnuut]

Capital Preservation

 

[lesta993]

Thanks. The more quickly I approach retirement, the more slowly my memory seems to surface.

 

[Griffin]

G, excuse my poor memory. Does CP stand for Conservative Position? Such as the G fund.

Thanks, Dave

Close same concept - CP Capital Preservation....yeah a safety position.

 

[Griffin]

OK let's try to put this Fed thing in perspective -

First - how important are the next few days? FOMC, GDP, consumer confidence, PCE, and Jobs - folks thats the whole kit and kaboodle. The $200K question is: is the current contraction going to lead to a recession? A suprising little tidbit of info - most recessions are accompanied by LOW growth - not decline (I'm not entirely sure of the accuracy of that statement and I can't find the article I read that was talking about it, so I welcome debate on the point).

If you follow my thread with any regularity, we've been mulling over the feasability of sustaining a bull market in a SLOW growth environment. That's the fulcrum of where the two competing stories are weighing in: Are we slipping into LOW growth or just SLOWING growth?

In either environment, new highs do not seem likely - unless we see a true panic wall of worry develop, but I think there is too much real evidence to allow such speculative behavior to occur wholesale across the market.

I say that because this fall is not like last fall (where there were all sorts of other potentially positive distractions), which means were pretty much stuck with the holiday season as being the sole torch bearer of new highs - and $100 oil really throws a monkey wrench into those works.

So, if you rule out new highs as unlikely and you start looking at recent tops - were there already, sitting high in the channel.

Let's breakdown the FOMC options -

Fed doesnt cut - seems unlikely in most peoples opinion (I am of the opinion that this is what is most likely) - lets say this is a 15% chance - now a wee tad of folks are going to say - hey great for the market - things are golden - buy let's call them an overall 2% (13% neg 2% pos)

Fed cuts .25% - most likely - already priced into the market - market moves in the direction of least resistance - lets say 70% chance

Fed cuts .50 - again 15% with 2% seeing the contrarian play (i.e. things must really suck for the fed to cut that much) so 13% pos 2% neg.

That basically equates to 15% chance of a positive move, 15% chance of a negative move, and the 70% chance the market moves in the path of least resistance - were at the top of the channel - no new highs - that means down or 85% chance were going down and 15% chance were going up, is the way I figure it.

Not good odds when were talking about the whole kit and kaboodle.

 

[wv-girl]

OK let's try to put this Fed thing in perspective -

First - how
....
Not good odds when were talking about the whole kit and kaboodle.

Thanks for being so articulate. These are the reasons I went to G today. I just don't think another cut is what US needs now.(But what do I know??) I guess we will see what good ole Ben is made of.

 

[Show-me]

I smell a Bear.

 

[FogSailing]

Thanks for your post Griffin. I think the Fed will cut .25 tomorrow, but I hope it doesn't. I am guessing tomorrow will be a down day regardless...we'll have to wait and see..so I jumped 80% G today..

Recession...you have to wonder how we can be heading for recession with the emerging economies still in a growth pattern and with the our dollar weakening...sounds like those economies need to be emerging a little faster..

Oil at $100 is going to be a very bad day for a lot of people...but if that's what it costs, the market will price it in...I only hope that one day the oil companies will be on the "receiving side" of this issue instead of the "kicking side"..

So IMO...the issue of American wages and American consumption are going to be centerstage in the immediate future..If wages remain stable or fall (while the process of balancing\averaging wages continues globally), our wages won't bring the same benefits to Americans (that day is already upon us I fear)..If American's can't continue to consume at traditional "mass quantities" levels, we should all expect some difficult days ahead for our economy...and I have a difficult time seeing us being able to sustain such levels of consumption..:worried:

However, the saving grace in all this will be the same market system that gives us such a workout every day...as emerging economies take up the slack, new energy technologies take hold in our country and globally, and we American's get refocused on fundamental priorities such as infrastructure, health care, agriculture, education, etc. in a way that keeps the American economy strong..I think that's where we're headed...

Thanks for your helpful commentary..

FS

 

[hessian]

Hi Griffin,
I'm Gonna try to make this short/to the point. Respectfully, pretend you're Uncle Ben. You've been handed this mess. You must be just a little pissed off, especially after getting grilled by the sloths on the Hill just a week or so ago - its their spending like there's no tomorrow, their policies & inaction that got us into this. Personally I think only Growth via a second 50/50 cut will save this economy from collapse. Inflation will occur, but what's the alternative? - recession, worse? Let them deal with inflation later. I think Ben will go with this strong message, again, back at the sloths! I'd do it - teach them a lesson!!
:worried::toung::nuts:

 

[Griffin]

I smell a Bear.

You do, I've moved to the G. Im operating with an expectation that the market will progressively step down with lower lows and lower highs, in a few multiweek cycles over the next 4-6 months. I expect we will see swings ranging across a 6-7% channel.

When the S&P blew through the 1520 support line to the 50 dma, the that was the signal that bear season is open - that is bear's huntin bulls. It looks oo much like a double top for me to ignore. I'm as suprised as the next guy, I was expecting a repeat of last fall, coming out of the last pullback.

Never fear - those new lows will be buying opportunities and there are returns to be harvested for the market timer.

 

[Griffin]

Would a 50/50 cut cause growth or inflation? I dont know the answer to that, but I do know growth has to be real not inflationary for this to work.

The article I posted yesterday made a real good point about how you view inflation - do you count food and energy The pig in the python (i.e. baby boomers) are sure looking at food and energy - that's the bulk of their expenses, and probably makes a difference as too their choice to retire or continue working. The worst thing that can happen to this country right now is a big bout of inflation - it will keep many of the BB's working but it will also land a much larger portion of that group into the ranks of poverty.

There is no good answer, but Ben doesn't get to be pissed off - he can quit and he can be short with presidential hopefuls but he can't get angry!

As for yourself - don't get mad- vote.

Hi Griffin,
I'm Gonna try to make this short/to the point. Respectfully, pretend you're Uncle Ben. You've been handed this mess. You must be just a little pissed off, especially after getting grilled by the sloths on the Hill just a week or so ago - its their spending like there's no tomorrow, their policies & inaction that got us into this. Personally I think only Growth via a second 50/50 cut will save this economy from collapse. Inflation will occur, but what's the alternative? - recession, worse? Let them deal with inflation later. I think Ben will go with this strong message, again, back at the sloths! I'd do it - teach them a lesson!!
:worried::toung::nuts:

 

[Show-me]

Griffin,

Don't know if you know this, but your comments are very well written and helpful to me and many others. Thanks.

The double top is hard to ignore and I know the Hindenburg is not always spot on, but it has preceded every single major decline. Reason to be cautious.

Oil is a killer and I don't see how the market is so strong with the cost of energy so high. Just heard about the storm off of Cuba on the news. Thank God we are having a mild fall here in the Midwest, 70 degrees today in Northern Missouri. Not uncommon, but very mild and we passed our average hard freeze date a while back.

Retail spending is a worry, but far enough in the future that the market is not focused on it.

Anyway, nice job on the comments and glad you're here.

 

[CountryBoy]

Griffin,

I'd like to echo Show-me's comments about the clarity and thoughtfulness of your posts. I also look forward to your comments and thanks for sharing them.

CB

 

[kaitlinsnana]

Is this SHOW GRIFFIN SOME LOVE DAY?? Well, I agree. Your comments always give me something to think about. I appreciate you too!!!

Gail

 

[Griffin]

Folks,

Thanks for the votes of confidence.

I guess I should have caveated last nights comment with the fact that the data feeding the economic calendar - should reflect an economic slowdown as in today's CC report. I think there is a tendency to get lost in wether the report hit's or misses expectations and we loose sight of the developing trend.

The CC report missed expectations - but interestingly enough, those expectations were rooted in economic conditions imporving since last month. The report confirms that the trend in consumer confidence is continuing to deteriorate - $94 dollar oil and now Canadians are looking at the US like we look at Mexico: a cheap place to vacation but I wouldn't want to live there.

 

[RPM]

it will keep many of the BB's working but it will also land a much larger portion of that group into the ranks of poverty.

What's wrong with us keep on working? We'll make the Social Security go a bit longer too!

I appreciate your comments as well. Keep them coming!

 

[DakotaKid]

Know too Griffen that there are many of us that rarely post, yet read your posts (and many others) daily in an attempt to get a handle on reading the market. Your insight is very, very appreciated. Thank you!

 

[whitemingo]

Griffin,

If this continues you are going to need to get a larger hat. I read your input each day before making my choices. Your input is greatly appreciated.

 

[Griffin]

The new suspended roller coasters all have pretty much the same start - you creep away from the loading platform, turn a corner, there's some little whoop-dee-doo show and then they you accelerate from 0-60 in 2 seconds, and your blood pressure triples at the same time. Then the rides starts and you come blasting out a tunnel into maze of twisted steel.

Were creeping away from the platform....at 2:16 the ride starts.

I agree with Tom, the smart money appears to be taking some actions in the event that the market goes down. Is it something to be significantly concerned with, or is that them just being prudent. I think prudence accounts for the majority of the action we are seeing.

What happens later today and over the next couple of days, is very much a function of the economic reports and indicators. Dips will be bought and profit taking will occurr at highs. I expect all your favorite indicators (MACD, RSI, Slo Sto, etc.) will behave as intended, given a highly volatile environment - meaning that big one day moves may quickly reverse themselves.

So you can either try to play the whip and IFT everyday or close to it, or you can play the indicators which typically take 3-5 days to reverse themselves and act accordingly. I'm usually the 3-5 day type but I occassionally dabble in the whip and I may do so starting tomorrow - if I find myself leaning in the right direction today (I'm set for a drop).

The ability to play the market correctly through all of this is rooted in having a good grasp of what the bigger picture is. Especially now since we are potentially at a turning point. There are two ways you can view the market right now:

I'm going to talk this chart for a minute. It is a five year, weekly chart of the S&P500:

View attachment 2396

1) Things are relatively unchanged - and we are still in a generally bullish market - this is the big 5 year trend, and while we are high in the channel, there is room to the upside (the upper red line). This means higher new highs.

2) (This is the direction I am leaning - so my opinion is obviously biased). While the larger 5 year channel and trend remains intact, we are entering a phase of long term weakness. This is characterized by a relatively strong year long bull run (see the purple circles) followed by a period of consolidation (see the green channel in 2004). In this model, I view the the two recent highs as a high probablility of being a double top (although this has yet to be confirmed). That means the blue sideways channel is more representative of the current market potential. This puts us much closer to the top of the channel (although there is a little room on the upside - the upper blue line).

If you can't see this chart because of your firewalls. Don't sweat it, you are where you are today, because you have concluded that things are one way or the other and the smart thing is to hold your position. Come back to this when you get home and out from under the firewalls.