Major Shrinkage

Asset values continue to deteriorate whether they be financial assets or commodities. This meltdown is putting pressure on corporate balance sheets worldwide, no doubt.

It’s a broad, double digit decline we’ve seen for stocks, real estate and commodities. Obviously, all this collateral value is disappearing, hence the bankers want more, or aren’t willing to lend. In fact mortgage rates have been going up, even in the face of the Fed lowering Fed Funds by 3.25%. This is just one example of the tension that is brewing again in the markets.

What does this mean for you and me?

We are due for another downleg. Get ready.

Oh, and The Fly will be free to curse up a storm at Dow 11,000.

Just like the good ol’ days.

Remember when people were saying that for the market to rally, oil and commodity prices had to come down? Well?……

Methinks there is still something more fundamentally wrong with the big picture. This is the fourth day in a row that oil is down, we get a better than expected manufacturing sector number, commodities are getting trashed, and still we have weakness in the stock market. On top of that, I have degenerate research guys pitching tech stocks, which happen to be lagging most everything today.

So much for that thesis.

In short, what’s to look forward to today? The Coca-Cola Company [[KO]] buying some Chinese juice company? Give me a break.

Thankfully, I only have a little over half my investable assets in the market, none of which is in international stocks/ETFs at this point. Nada, zero, zip.

Cash, while it only pays Roman galley slave wages, is looking like a good choice to hold out in.

This morning, Goldman Sachs Group, Inc. [[GS]] caught a downgrade from Wall Street peer Credit Suisse Group AG (ADR) [[CS]] . Asset price declines and the widening of credit spreads were cited for more mark-to-market writedowns in store for the egregiously high-brow firm.

No doubt investment banking business is down for GS, as it is for the whole greedy group. Goldman Sachs Group, Inc. [[GS]] fixed income underwriting is down 44% in subprime issues (no surprise), but investment grade underwritings are down 11%.

Equity underwriting fees are down 32% and M&A down 9% from last year.

Still, if you had to own the top investment banker/asset manager, this would be the name.  Just not now.

Yes, it is possible, and you can make money. (Read more…..)

Keep an eye on Amgen, Inc. [[AMGN]] shares.

This looks like a candidate for some short selling tomorrow. Check out the long tail up on the PnF chart.

AMGN got a boost last quarter of 9 cents to EPS, benefitting from forex. Should the dollar continue its strength, expect the second half for AMGN to be, let’s say, less than ideal. 

I’d look to sell it on a breakdown below 62.

In this environment, it might be worth it to hedge your short with a call option.

Disclaimer: Selling stocks short is very, very risky. Adults only.

I’m still about 25% cash, 20% fixed income (munis), and 55% stocks. I’m guessing that this is where I’ll most likely stay allocated through the end of this quarter.

This market is conflicted. We have a government policy of trying to inflate the economy and banks tightening lending standards. We have oil and commodity prices falling, but weak economic indicators.  The market has been rallying somewhat in the face of a developing global slowdown. We also have credit spreads on low-quality issuers widening while we are seeing a rally in small cap stocks.

Does anybody know what’s going on? …..Didn’t think so.

I expect more of the same going forward. 

We are entering into the time of year when seasonality factors come into play. September can be a difficult month to navigate through, (although this hasn’t been the case since 2003).

However, this is the time to stay defensive, keep the trading short term, set tighter stops, take profits often, and have some cash available for when the picture becomes clearer.

A word on investment strategy: when you’re in the funhouse, if a scary clown pops up from behind a door, punch him in the face and run.