What Are We Still Rallying On?
May 19th, 2009
So I had moved out of the double long S&P, and in to a double short financials, with the expectation that if we were heading down, financials were going to be leading us there. Financials led the way alright. All the way up. The expectation on my part was also that a lot of the commercial debt, and credit card debt out there is a ticking time bomb. By this, what I mean is that although things aren’t getting worse as fast as they were before, the longer they go without getting better, the more likely defaults from businesses and individual consumers.
I still don’t understand how housing starts are up, but then again I’m not in that industry. Maybe the expectation is that now things are going to rally, and if that’s the case then now’s a great time to start building. But just last night, we were watching the news and they were talking about how many ghost town-like suburbs are popping up in southern California. If that’s the case, why on earth would you be building?
There’s a part of me that wonders whether projects were put on delay until things looked less apocalyptic, and now that things are looking better people are going ahead with plans. To me, the huge rally today (percentage wise) just looks more like investors getting further inflated on optimism. I think of it like the July spike in crude oil prices: prices got so high and people were so convinced on the direction of the price, that when one thing got thrown in to the gears that didn’t jive, the whole house came crashing down, and it came crashing down HARD. Just look at crude now, and compare that to $147.
I’m going to continue to hold out on SKF in the short term, but that might continue to prove a losing bet as the ticking time bombs I’m talking about might be a ways off. All I know is that with unemployment increasing, even if it’s not by much, that’s just more and more people that are going to be defaulting on their credit card debt or mortgage payments. And that means more and more ghost towns. As long as things aren’t getting better, default is still looming.
A More Gradual Slope Still Leads to the Same Result
If I’ve learned anything from this whole credit crisis/recession, it’s that things aren’t bad until they’re terrible. We keep chugging along until Bear collapses. Then we keep chugging along until Lehman collapses. Right now we’re chugging along, but until what happens? I think we’re about to see some more waves of default as people that have just been hanging on either can’t continue to make it, or are laid off. That goes right to the banks. I guess you could say that the government will step in to help in any truly bad scenario, but at what point do we look in the cellar and find that there’s nothing left to keep this boat afloat?
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© 2008 Andrew Jarmon
