Sunday, July 13, 2008

Is Capitulation Near?

I think so.

Let' s look at what happened this past week.
  • Financial companies are being crushed. Two months ago, I didn't think financial stocks could go an lower. Fannie Mae, Freddie Mac, and Lehman all lost significant value since. Not only are financial stocks going lower, but some, like IndyMac, are going to zero. There are likely more failures to come.

    I wouldn't be surprised if more government intervention is crafted over this weekend and announced Monday.

  • Oil hit $147 a barrel. Businesses are getting crushed by the expenses, which continue to increase as oil based raw materials and transportation costs increase. These costs will have to be passed on to consumers. As a result, consumer spending will decline significantly.

    I found it interesting that twelve airline CEOs have written a letter to the public for help to reduce oil prices. If I really had that kind of power, I would have reduced gasoline prices to $2 per gallon a long time ago :-)

  • VIX is rising. The CBOE volatility index is considered a barometer of investor's fear. It rose to almost 30 in Friday's trading. For reference, the VIX reached almost 40 in September 2002, at last major bottom of the Dow.

  • The only place to hide is in energy and agricultural stocks, which I believe is a sector bubble. When the energy and agricultural bubble pops, capitulation will happen.

    For more on New Beginnings, check back every Sunday for a another segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

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