Sunday, June 03, 2012

Starting to Look Ugly for Stock Markets

Yesterday, I posted that I thought there would be a relief rally and being overweight long positions would be beneficial.  Now I'm not so sure.  (Not that it matters much since I only have a 50/50 record of predicting the next day's market direction :-)   Here are my observations supporting a continued stock market decline:

  • More inexperienced people in power.    With the election of a new French President and the potential election of a Greek anti austerity party, there will be more people with no experience in solving economic issues in power.  I recall the mistakes Ben Bernanke made in 2006 when he dismissed the issues of risky mortgages. 

  • More negative news.    Jobs growth has stalled.  Earning estimates are declining. All assets are becoming more correlated.  Bond interest rates are going to record lows. More pundits are now acknowledging the likelihood of a EU negative event along with a potential U.S. recession.   

  • Fear but not enough yet.  My spouse has adamantly refused to invest any more of her retirement account funds in stocks.  (For reference, she is a buy and hold advocate.)  However, she has not decided to sell out of stocks in her College 529 account yet.  Also, I've decided to stop purchasing long positions as the market declines this week.

  • So tonight, I have identified 10 stocks to short this week.   I would prefer to initiate new short positions when the market bounces.  However, I will probably establish some new short positions even if the market declines.

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

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