Posted by Frugal on 30th August 2009
With Wallstreet traders returning from summer vacation, the coming September & October will probably have higher volatility for sure. Yeah, I’m also coming back from my two weeks visit to my parents.
During July & August, markets have relentlessly grinded shorts and continued its march to higher prices. Volume has not been big. While most market participants have expected some economic recovery, most of the economic indicators are still subdued. Is this the time to expect the unexpected?
With Ron Paul’s bill to audit the Fed probably passing in October, I expect that the Fed’s hands will be tightened. Furthermore, Fed is wrapping up its 300 billion purchase of treasury bonds in October. The treasury bonds will likely be facing significant upward yield pressure, further putting pressure on stock markets to compress the P/E (if there is still some Earning).
While I don’t expect an out-right collapse, caution definitely is advised. This rally still has steams behind it intermediately speaking. However, as investor optimism & speculation grows, the market becomes more precarious by day. What makes this rally/market different is that stocks & bonds are also in sync, rising. When things turn, both may turn in the same direction also. One should be more concerned about return of capital than return on capital.
Regardless, my past calls from early July until now for caution have been proven wrong. Whether I will continue to be wrong, it matters to me not. I will continue to hold my patience, and until the time is right, I will jump in with both feet. Maybe it will never come, with a V-shape economic recovery. Even with Bernanke’s re-appointment, I still doubt that he can print jobs instead of more paper money.