As I read through the many hours of material, it is obvious that the housing crisis is far from over. We got a good reading this week and the spin doctors were all over it proclaiming the bottom of the Real Estate is in.
Nothing of the sort. But then this is what you would expect from the industry that makes money when you buy what they are selling.
I noticed some pundit from CITI calling for a 15% jump in the S&P by year end. What would you expect the cheerleaders to be saying? It reminds me of Abbey from Goldman Sachs calling for the dow 15,000 as it was tanking in 2000.
This and other reasons are why I try to refrain from making such calls. It really puts egg on your face.
Anyways, the root of todays credit problems that are now looming for the consumer which in return will crimp companies earnings thereby continuing the drop in stocks, is directly related to the housing boom to bust. It is important to understand this to form a basis to move forward on what will perform and what will not.
Election year or not, we have become increasingly hooked on the idea that the feds will save us. So the feds attempt to save us. What happens is increased flooding of currency to attempt to prop up the economy.
What twisted remains will rise from these attempts will make or break every investor. So having written all of this, it boils down to 1) Do you believe the housing has bottomed? If so then load up on financial and home builders. 2) Do you believe the bottom is no where in sight? Then load up on tangibles because the feds are coming with more boat loads of cash than we have seen on our lifetime through various "rescue" packages.
Just more resolute to go long any and all pullbacks on natural resources and short the dollar on any and all rallies.
Once again my favorite way to play all of this is to take a long term option and then sell the shorter term options. Your ideas of how bullish or bearish you want to become will dictate this being either the same strikes (calendars) or different strikes (diagonals) Calendars are less directional and are very good despite many who dislike the 20/20 hindsight of woulda coulda. Many times the corrections can wipe out any strategy even when the long trend is still intact. It makes more sense to use diagonals if you are getting in at good timing, fine example is DBA, while grains should continue for some time to move up wards, we have had a very nice sell off. Entering a diagonal would be my choice, but what if we enter the trade and the sell off is more pronounced? Then the calendar traders would be smiling more than me.
There are no set absolutes, and that is what makes trading never dull.
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2 comments:
Dell, What exactly is the CRB, commodities index of what type?
The CRB is a basket of commodities. Grains, energies, meats, softs (sugar O.J.) etc.
It was traded up until a few years ago and is now replaced by another index. Although it was not very liquid to trade, it was the industry benchmark to follow. As such it is still charted.
Go to www.nymex.com for more details.
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