Monday, November 19, 2007

DOW and Housing

As yours truly predicted last week, the mini-rally of last week was nothing more than a head fake. We are in the sweet spot of red now. The DOW was a 14K a month ago. That's a 7% chop since. And we have a long way to go. 12K is a no-brainer. Once we get below 12K is when the decisions will have to be made. Buy in and take a chance or wait it out but potentially miss out on some rallies.

The performance of equities is a super fast version of what's happening with housing. The so-called experts such as Kudlow and Cramer said housing could never fall. And they also said equities were poised for big gains. Anyone who said otherwise was a naysayer, a doomer, a gloomer and gosh darn it, just plain old crazy. Equities had a small slide this summer and the Kudlows and Cramers of the world said the worst is over, buy, buy buy. And a dead cat bounce did occur, however short lived. Now where is that rally? In the toilet that's where.

Housing is doing the same thing only much much slower. 2006 was a plateau year. Early 2007 was the start of the crash. The so-callled experts said buy buy buy. Prices can't fall any more. And some did. And prices spiked just a little bit before continuing the downward trend.

Stocks like housing are priced based on fundamentals in the long run. The fundamentals say (as I have been saying) both are over valued. And as always happens fundamentals don't lie. Fundamentals don't skew. Fundamentals don't spin. Fundamentals have nothing to gain by lying. That is why your best bet is to ignore the salesmen, ignore the propagandists and focus on fundamentals which tell you we have a long way to go until both housing and equities bottom out.

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