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The major problem that has yet to unfold is the
true extent of the OTC market in derivatives. There are both credit
derivatives and default derivatives. Merrill Lynch has just exposed part
of their problem last week. What other financial institutions and
investment banks are loaded with these derivatives? I believe that there
is a lot more to be revealed in this area. There is no public market for
these instruments and as far as I know there is no valid method of setting a
value on them. Countrywide put together some mortgage packages and there
were no buyers. There is little being written about the commercial paper
market.
I don't go to the market very often but one thing
struck me today. The last time I went to the market and bought bread it
was $3.50 a loaf. Granted it was about 6 months ago, but today I picked up
that same loaf of bread and it was $4.65 a loaf. That is far from the
governments 3% inflation factor. How many other items are escalating at
the same rate. Gold just hit a new high tonight as did crude oil and the
U.S. Dollar hit a new all-time low. .
With all of these inflation numbers I don't see how
the government can reduce interest rates. The markets indicate that a 1/4
point drop in interest rates is a done deal come the FOMC meeting. I
personally think that is the worst thing that can happen, but who am I to set
government policy. We will all suffer the consequences in the
future. Now Bush wants another 45 billion for Iraq.
I have no major sell signals at this time, but
things are over extended at this time. If you hold long positions I would
look for protection if you intend to stay long and tighten up your stops.
This week could to be very volatile with all the economic reports that are due
this week.
Just one man's opinion,
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