Guess who's back from holidays?

A few of the Dipbuyers returned from summer holidays yesterday, and immediately got to work trying to re-start the party. The music was started, some other guests came back, and they even danced for a few hours. The problem is that the booze (AKA credit) is all gone, and all of the stores (AKA banks) are closed for the night. Thus it seems that the party is unlikely to last.

Indeed, despite the dramatic recovery in NY yesterday, Asian markets tumbled pretty strongly overnight. The Nikkei fell over 5%, to a level that was last seen 12 months ago. European markets are currently giving up early gains. Currency markets remain volatile (the Yen is jumping around like a kangaroo). Given how long the liquidity lasted, there must be a lot of traders / funds out there hoping (please) that they are not forced to exit positions at severe losses. The pain is getting bad, but I don't think we are there just yet. Usually markets go vertical when they are near turning points, both on the upside and downside.

Looking out a few weeks / months, the big question is whether this is just a credit crunch, or something worse. The general opinion seems to be that this is like 1998 -- we just need liquidity conditions to return to normal (preferably with a little help from the Fed), and everything will be fine i.e. the bull run can resume. The major problem with this theory is that it ignores the fact that there is also a severe housing market downturn going on at the same time. This could continue for another 12 months, maybe longer. Manufacturing is also weak. This has already placed a lot of pressure on consumer spending, one of the major drivers of economic growth the past 5 years. Banks are also tightening lending and this will not help the situation. Thus we could have a situation where the market is "saved" by Fed easing, but then belatedly realises that the economy is in pretty bad shape.

Looking at yesterday's trade in retrospect, the timing was poor, and it cost me money. The trade was definitely impetuous, and perhaps I need to consider introducing some sort of "cooling off" policy whereby I must wait an hour or two following the decision to trade. This would allow the circumstances to be evaluated in a calmer manner.

MARKET POSITION: SHORT (4 units)