I'm Not Doing Much

Right now nothing is about stock fundamentals, it's all about Washington D.C.

If you ever watch a political debate they sometimes show a target group of people watching the debate and their reactions are monitored on the bottom of the screen - i.e. favorable or unfavorable as the debate goes on.

Well this is what is happening right now - but instead of a needle at the bottom of the screen the "gauge" is the entire stock market. So as each comment happens on TV the market seems to move. I didn't know why the market fell off a cliff in the last 45 minutes yesterday but when I got home I saw at 3:22 PM Senator Dodd said as currently constructed the bailout plan was not do-able (paraphrasing) - so the market falls 150 points. Again, this is not something we can "game" or "model" - a Senator's remarks are not something one can know nor plan for. Hence there is no reason to be highly involved in this market until this is taken care of.

My feel is the politicians are getting MAJOR flack from their constituents but they know where their bread is buttered (political contributions from big money) and also they have been sold on the fact that this is a necessity - so it will be done. But they have to appear to be putting up resistance, before they are bowled over. So the mother of all bailouts will get passed. It's just a matter of when. Friday or Sunday. When it happens the market will have a knee jerk reaction upward. Hence, it's dangerous even on the short side. If there is no resolution by Friday I will be cutting back my short exposure heavily going into the weekend expecting a "Sunday night special" and a positive move Monday morning as capitalist clap in glee they can offload their 'free market' onto taxpayers.

But between now and then, we are just hostage to the situation and its quite useless to get involved because one comment by any Senator can move this market 2% in an instant and I don't want to be in front of the train.

We remain in a primary bear market where I believe all rallies must be sold. Even after the mother of all bailouts. Remember, we are about to enter earnings season (3rd quarter) - we've been pointing all year to the disaster that 4th quarter earnings estimates are. Analysts are modeling 60%!!! year over year earnings growth in Q4 2008 over Q4 2007. Stil. A few months ago they were modeling 30%ish Q3 2008 over Q3 2007 as they cheered the "2nd half 2008 recovery". Now that's dropped to a negative rate. So I expect a lot of Kool Aid to be let out of the market by corporations in this earnings season... or put another way - they are going to dampen down Q4 expectations big time. And you know what that means for stock prices... the minute earnings are released people wonder what guidance will be and react in lemming like fashion.

Q4 2008 won't be showing 60% year over year growth. So we're going to see a lot of "lower than analysts predictions" guidance for Q4 in the month of October. It remains dangerous out there - even if we will be prone to moves like last Thursday and Friday with vicious upswings every so often.