Economic Overview: Now to Fall start

After the biggest point gain in a day since Oct 2002 (286), I believe that market will fall tomorrow unless Feds meeting is very positive. I believe that the overall US and International economy is doing great. Earnings are not as great as the first half of this year but still good. International growth will continue to fuel the company profits.


There are two main issues for the market.
1> Liquidity
2> Employment
3> Housing & sub prime

It is true that cheap money has left the market, but I believe this is temporary. Corporate profits will keep on supporting the market in the form of buy backs. Private equity still has cash , though credit worries means that leverage is gone. I think situation is far from reaching a critical point.

I mentioned doom spiral earlier this year that unemployment rate is a critical information to track. Unemployment numbers inched a little higher from 4.5% to 4.6% This is a small increase, but something that we regularly track. This economy is total dependent on consumer (70% of aggregate demand) and as long our dear consumer keeps on spending their paycheck and credit, we will be fine. With record corporate profits the second leg of the aggregate demand - capital investment - will start pulling its weight in the GDP and pull the economy out of recession.

As long as people are employed, housing & sub-prime will be contained as premium credit people can make payments even slightly increased payment due to reset of ARM rates. This will have some effect on personal consumption, but as long as we keep creating jobs every quarter we are fine.

If you read the above three paragraphs you must have realized that the three points are precariously balanced and juggler of the economy will keep the three balls in motion as long as the balls behave as expected. If just one of the three balls deviates from the expected path we will see a class act fall apart.

I am banking on balancing to continue and market go up to cross 13900 (Financial and Technology will be the leader) in next 1-2 months. What will happen then ...nobody knows. Keep eyes on the three above and they will be your crystal ball to the future (Market behavior in fall & Winter) Till then keep tight and type your comments below.

Economic Outlook
Near term: very bullish
Medium term: No idea
Long term: Bullish

Market Volatility: Option time

I bought a couple of options on the Dow last month. First when Dow crossed 13800 I bought some puts. The only problem is that I bought July options when I should have bought August.
The options were expiring within a week and market didn't have time to fall. So, I lost about $1000 instead of making $3000+ if I had bought August.

Recently, I bought 5 September 135 Dow call at 3.75 and and another 2 at 2.90 for a total of 7 Sept Dow 135 calls at an effective price of 3.47.

Update Monday Aug 6th 2007:

Today, I pared this down to 5 selling 2 at 3.5 as I wanted to reduce my exposure before the Fed meeting tomorrow. If the market goes up before the Fed and my options are above $4.00 I also plan to take more profit before the Fed meeting minutes at 2:15pm, may be pare down another 2-3 options