My 1st Million At 33 – yes, you can do it too

Jim Cramer had another of his trademarked spasmodic episodes on CNBC on Friday, literally begging Bernanke to open up the money spigots. It was quite a sight and quite entertaining in my opinion.

Amid a crescendo of negative, “subprime” related sentiment, it’s imperative that we discern two separate effects of the housing debacle

1. Reduced construction activity, reduced mortgage equity withdrawal, high home inventory, high loan delinquency and foreclosure rates, tight lending standards, reduced consumer spending and rising unemployment
2. Losses in MBS, CDO and CDS portfolios, hedge fund busts and redemptions, and increasing loan loss reserves

Effect #1 is a blow to Main St. where countless real people are in danger of losing their homes; however, the shockwave takes time to reverberate through the real economy. In contrast with effect #2, which primarily impacts Wall St., some pension funds and insurance companies, has the potential to bring down the entire financial system. This is one of those occasions that I actually agree with Cramer that the Fed will step in as the “lender of last resort”.

All eyes will be on the FOMC meeting this week. If they give an indication that they’re ready to intervene in credit markets or if they change the so-called “bias”, expect a big rally. For now the Fed still has credibility. At the same time, housing’s drag on the real economy won’t be so easy to address. This housing bubble collapse is already in motion: lower rates (which the Fed does not directly control) are unlikely to spark buying interest. Congress does have the power, for example, to act through Freddie and Fannie to keep home owners on life support for much longer, but I fail to see how that won’t result in a Japanese style “lost decade”.

200 Day moving average

S&P dropped below its 200 day moving average (both simple and exponential) on Friday to end at 1433. Many people follow this very important indicator and I’m no exception. I use it as one of my secondary timing indicators and the crossing means I’ll be looking to hedge 25% or my domestic equity exposure next week. My primary indicator is even slower moving and hasn’t flashed a “sell” signal yet. In view of the FOMC meeting and Cisco’s earning release on Tuesday I plan to set up the hedge slowly.

Best.