Sunday, March 22, 2009

Predicting a Market Decline for this Week

I expect this week to be the start of another decline in the stock market, ending the bear market rally of the past two weeks. Here are the factors that I believe will turn the stock market downward:

  • Toxic asset program details to be shared. The last time Secretary Geithner held a press conference on this topic, the market fell significantly. Based on the plan details, I expect there will be little interest in private equity participating. After all, who wants to be subject to Presidential, Congressional and public outrage when profiting from a business deal, which I expect would happen if big profits are made from purchasing assets.

    I think a major issue is that Mr. Geithner is clueless that he is clueless. Knowing that he chose to consumer tax preparation software to do his taxes incorrectly while on international assignment at the IMF, doesn't give me much confidence he has a grasp of the complexity of the issues he faces.

  • Obama will promote his proposed budget, again. While the Administration is calling the budget a blueprint for the economy, many investors see it as a blueprint for economic disaster. The market will likely react accordingly and decline, as it did after the budget proposal was first shared.

    The budget proposal is about solving issues every bit as big or bigger than the current economic crisis. Also, all the problems will be inherited and not created by the current administration, as they constantly remind us about this economic crisis. I'd love to see a successful solution to the first inherited challenge before taking on the others. I think most stock market investors would also :-)

  • Selective vilification is expanding. First it was taxing the rich, which was defined as the top 2% of incomes. Then it was vilifying auto executives for using corporate jets. Next, financial intuitions who took tarp money and paid bonuses or had lavish corporate events. Last week's vilification of AIG and the punitive 90% tax on bonuses that the House passed are the latest example.

    Since the Administration and Congress seem to change to rules routinely, it will probably cause companies to avoid any participating in new government programs, even though they will help the economy. As a result, confidence in the governments ability to stabilize our financial systems will become lower this week.

  • At this point, I am preparing for a stock market decline for this week. Last week, I sold all the stocks that I had purchased 2009, only keeping two call options and a stock that was put to me last Friday after the close. In addition, I sold all the financial stocks that I purchased in October, 2008.

    If the market should unexpectedly rally, I will continue to sell some positions. If it falls, I plan to wait for a significant decline before making any purchases.

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

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

    Copyright © 2009 Achievement Catalyst, LLC

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