I sold all of my yen, via [[FXY]]. There is some sort of strange bullish tone spreading throughout Wall Street. It feels as if the confidence to take on risk is back and the sellers are on the heels, thanks to financial stabilization.
However, keep in mind, tight credit will permeate the economy for many months into the future. The problems we’ve seen at the banks will make its way into small business financing and industrial related names.
I realize everyone is pointing to India and China as the main catalyst to get long industrial names. But, don’t look now, China’s stock market is down 40% this year and have been under considerable inflationary pressures.
For the most part, earnings estimates of the S&P are way too high and need to come down. With the Dow only down 5% year to date, I believe there is another 2% tops of upside, while 10-15% of downside potential remains. Keep in mind, the bull case calls for the deflation of commodities, namely oil.
Well, oil and commodity related names make up more than 15% of the S&P right now, Considering how weak the financials are, do you, as a bull, really want to knee-cap the earnings of your lowest multiple/strongest group?
If so, expect the composite PE of the S&P to shoot through 20, making this market incredibly expensive.
All of that jargon is meaningless today. Right now, the market is running on increased optimism and momentum. I do not want to sell short the banks here. No yet. As a matter of fact, the only group I am comfortable with betting against is commodities, since the dollar is strong.
For now, my top picks are [[SMN]], [[DCR]] and short [[MON]].If you enjoy the content at iBankCoin, please follow us on Twitter