(Ed.note: This is an email dialogue that I had recently with one regular reader and a follower of the Minyanville web site.)
Observer:
I have heard pundits say that in a bear market, you get bear rally and a series of them, each weaker than the last. I also hear that housing prices are at the bottom, but as I see it, there has to be "capitulation" or a significant reduction in housing prices that maybe would come after growing unemployment.
What is your vision?---
Senior Trader:
"Capitulation" does not just mean the traders get disgusted and take a vacation. The 401k idiots who have bought into "buy and hold" have to give up in disgust, also. Those people haven't sold yet. This thing won't be over until the little people are out of the market and the bulls' stampede is over, animal spirits totally run out of them.
Currently the best bellweathers IMHO (Toddo of Minyanville uses BKX ) is BKX (bank index, Philadelphia exchange), and MBIA, Ambac, & FGIC for their credit dedfault swap exposure. If MBI goes down the major indexes follow swiftly. MBI is going for 2.5 price/earnings ratio.
http://finance.yahoo.com/q?s=%5EBKX
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