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Seeking Alpha

Friday, December 14, 2007

Morning Coffee: Markets Dazed & Confused


(Stocks in this article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: C, NYSE: BDK, Nasdaq: JBLU, Nasdaq: JASO, NYSE: WM, NYSE: WB, NYSE: WFC, NYSE: CFC)

The market seems dazed and confused currently, trying to figure out if the credit market will implode, if the economy will collapse, if inflation will blaze. This makes us vulnerable to outside shock, a negative catalyst. However, I like it. It's also a sign. When fear gets this frantic, I shift to bullishness as the mentors advise us, as the geniuses of our game teach. Oh, there are serious dangers ahead, but the immediate period seems to offer opportunity.

Importantly, capital flows should shift as we move through the end of the year. We should have a short-term bull to start '08, and after that, I agree the first half of the year will likely hold pitfalls and offer a rocky ride for stock investors. And, if Iran falls into place as I expect it could, my outlook for '08 is actually rather negative. Even so, I say that for now we should be long.


  1. Inflation Fears, Nov. CPI - Today's Consumer Price Index report put the fear of the inflation God back into the market. He's a Pagan no doubt, and could require sacrifice to be appeased. Steve Liesman of CNBC went so far as to say the Fed would raise rates in the current environment if inflation data sends this same concerning message more consistently. November's CPI showed a 0.8% increase, mostly driven by the expensive price of energy last month. Excluding food (also higher) and energy, the Core CPI showed a 0.3% rise. Both measures exceeded expectations, and the trailing twelve month Core CPI (best for gauging the Fed's view of it) indicated a 2.3% increase, up from 2.2% in October. If stagflation, which is the combination of economic doldrums and inflation (in other words the worst case scenario), rears her ugly head, 2008 could be very challenging.

  2. Citigroup's SIV Rescue - Citi announced that in order to avoid the downgrade of seven of its SIVs it would provide required backing, but thus have to bring some of the burden onto its balance sheet. Moody's downgraded Citigroup's debt ratings as a result, but The Greek views this move as productive and wise on Citi's part. I want to reinforce to you my view that the cure to this problem, and the unfreezing of these markets, is clearly tied to reviving the underlying mortgage and credit obligations. I believe the government has clearly embarked on this effort, and as it realizes (hopefully) the extent it must go to insure the stability of the system, we can recover and the instruments can again trade.

  3. Oil's Conflicting Factors - I noticed a strange trend this year, winter. It's actually chilly outside, and it's even snowing. Heating oil traders have noticed the pattern as well, and as the Northeast braces for a Nor'easter, the price of crude and heating oil have adjusted upward. At the same time, the economy, and global economies, are forecast to show significant decreases in growth rate. Therefore, I see this current rise in price as a temporary phenomenon, but continued normal winter weather patterns could sustain prices longer. The IEA today issued its revised '08 demand forecast, and as always it does not agree with OPEC. The IEA noted that despite economic pressure ease, demand would increase in '08. OPEC, which has a vested interest in keeping supply tight to demand, seems to always view things in a placid manner in comparison to the IEA's panicked voice.

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