July 14th, 2008

Freddie, Fannie and the Future

Futures show a big increase coming but let’s put those numbers into focus. The Dow futures are up around 120, S&P 500 up 16 and Nasdaq up 18. So the talking heads are painting these increases as a turn-around.

In reality, this could be nothing more than some short covering since these levels are no higher than the highs of the last trading day, Friday. Let the markets open, go through half the day and we’ll see their viability. If you’ve been reading here, you remember that last Wednesday I wrote about a bounce at around 1234. Friday’s low as 1227 and close at 1239; that’s pretty close to 1234.

Yes, there is a fundamental reason for a bounce — the US Government coming in and backstopping the Freddie and Fannie. But since 2005, this level has also been a pivot point several times, a point where it changes direction. But given those turns, the prevailing trend continued (back in 2005 it was a continuation of the bull market).

This time, we’re going to need more evidence before believing that the prevailing bear trend has reversed before significantly changing our investment philosophy. We’re going to continue investing in precious metals (in the belief that all this financial remediation is going to lead to even more inflation) and hedging the indexes through the DoubleShort etf’s.

Subscribe below or click here to learn more about help for navigating turbulent markets.