Thursday, August 02, 2007

August Blues

So finally, we have entered the period of volatility that I had been expecting since March. Considering that S&P is up 3% for the year while I have made 2.5% in my bank account (in dollars), cash hasn't been that bad.

But still, the major markets of the world are only 5% off their peaks. That's a very minor correction, considering that we have been up 30% since last july, from the day of Bernanke's testimony in congress in 2006, and the end of Israeli-Palestine conflict.

Yesterday, the Dow rallied by about 250 points in the last 20 min of trading, after having been down as much as 100 points. Clearly, this kind of volatility is unsettling.

The Fed meets next week. If they as much mention that they are aware of the turmoil in the credit markets, markets will rally in anticipation of a rate cut. What would be best is markets keep oscillating around current levels for next week, Fed again says that inflation is still a concern, and markets correct after that.

Then after 15 Aug, we enter hurricane season. I wouldn't be surprised if oil jumps to 85 this time. At least one hurricane always goes by Gulf of Mexico. If that were to happen, markets will shake, on concerns of declining consumer spending.

And finally, BOJ meets on 22 Aug. After the defeat of the ruling party in recent elections, I am not sure how they are thinking and whether they will raise rates. But if they do, that would be the really big headwind facing the markets.

I am convinced markets will end up 10% for the year. I am also convinced that a better entry point will occur in mid september.

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