The Perfect Storm?

Calendar March 13, 2008 | Posted by Jorge

Some folks say we’re in a recession. Others say we’ve hit the bottom. The truth of the matter is that no one has any concrete idea about what’s going on. But I can only guess as to what’s going to happen, at least short term.

Let’s start with yesterday’s action. As I suggested after the major run up Tuesday, we had somewhat of a resistance ceiling on the S&P and DJIA. What happened after yesterday’s close?

S&P500 - March 12, 2008

For a brief second, we went above resistance on the S&P (and the DJIA too if you don’t believe me!) and quickly retraced back below yesterday’s close ending lower.

Now, this morning brought some more bad news to the markets. First, the Carlyle Group’s mortgage-bond fund is nearing collapse after it defaulted on some $10+ billion. Them, as well as Thornburg Mortgage, Inc. (TMA), had been issued margin calls, essentially forcing them to put up more collateral. The problem is, investors are still very weary of allowing mortgage-based assets to be used as collateral. Therefore, unless some sort of bailout occurs, the Carlyle Group’s mortgage-bond fund will ultimately collapse. I think TMA might be saved but it’s still too early to tell.

So you have two mortgage groups on the brink of collapse. What next? Well oil hit $110 / barrel. Gold topped $1000 / oz this morning. While jobless claims remained unchanged, retail sales for February fell by about 0.6%. Did I mention the $ vs. Yen hit a 12 year low with the exchange rate now at $1 : 100¥ Yen? The Euro (€) is at an all time high against the dollar as well.

Don’t forget that next week the FOMC meets. The markets have priced in a 50 basis point cut. To be honest, I don’t care what most of the pundits say. We’re in a recession and the markets still have room to go lower. The news hasn’t gotten any better since Helicopter Ben dropped $200 billion on the markets.

Anyone taking bets on seeing oil reach $120 / barrel and gold touch $1100 / oz by the end of the month?

Category Categories: Market Pulse | Tag Tags: | Comments Comments

  • Jim
    Great information. This post is very informative, I like the solid updating on the market conditions. A little doom-and-gloom for my tastes, but hey, you gotta take everything into account
  • I think we are in a perfect finacnial storm, I bet by the end of the year $150 oil and $1600 gold.
  • If you really believe in $120 / barrel oil, then you should definitely look into UCR/DCR arbitrage. Short DCR.
  • Jim,

    I just got married. Why do you think I have the doom and gloom over my head ;)

    Josh,

    Some analysts think $200 oil and $2000 gold are attainable. Now, I don't know if oil hits that high, but anything's possible with these markets. They're so irrational it's stomach churning.

    OS,

    UCR / DCR? I've never heard of MACROshares before. Might take some research (and a blog post ;) ) It all depends if Helicopter Ben cuts next week. I think he will, sadly enough.
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