Re: Dow Theory Confirmed SELL signal today
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awesome theory when you know to sell when everything is just begining to look cheap. All im gonna say is I wish bought more sp puts back in october. I sold them though and am gonna rebuy before the next fed meeting as I really feel they will not cut rates. When that happens get ready for 300 pt drop. Ill either do it the day before the meeting or into the next rally.
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i've learned something in these past few attempts at guaging the fed. do not underestimate the fed's willingness to cut rates.
inflation expectations have been well anchored and the fed i think will continue to test them.
id expect a cut and further expect the fed to (arguably justifiably) state the reason as tightening credit conditions and the likely ensuing hit to consumer spending.
exports = 12% GDP.
spending = 70%GDP.
so a 10% drop in spending hurts more than a 50% increase in exports helps.
many studies estimate the following relationships:
a $100 fall in financial welath reduces consumer spending $3-$5 and acts very quickly (no lag, same quarter affect)
a $100 fall in housing prices reduces consumer spending $4-$9 and takes a long time to work through the system (long lag)
basically this means that housing will be a significant drag on the economy in all likelihood while at the same time, falling asset values could hurt spending even more which could produce a 10% overall drop in spending, which would in effect take at least a full point off of GDP.
given all that i'd thinkt he fed could justify further cuts.
Barron
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