Monday, May 22, 2006

The Herds are Everywhere!

I just heard the best phrase, "hedge fund herd mentality." It finally states the sentiment I have been searching for since finding that there are A LOT of hedge funds out there, running around with a very significant amount (i.e. A LOT) of money pursuing similar strategies. There are hundreds of hedge funds out there, but many are acting like one, huge, superfund institution that is moving markets by itself. Herds are always dangerous in the markets when they stampede or simply roll over anything in their path. It will be interesting to see how SEC regulation will affect future hedge fund development.

But that's not the half of it. In the same article, an expensive, institutional economy report is cited:

Bridgewater's conclusion:
"The supply of U.S. bonds that is being dumped onto the world is still monstrous, and foreigners desire to hold them is rapidly declining... In order to stimulate enough demand to buy the massive supply, yields have got to rise and the currency has got to fall. This adjustment has barely begun." ***

It shows that foreign investment is, in fact, a serious factor in the price of US stocks and bonds, and subsequently our economy. The above is a prediction that the value of the US Dollar will continue to fall, and the Fed rate will continue to rise (or rather, they must).

BUT FEAR NOT! The note is concluded with the following timeline:
Long-term optimism. [Don] Hays writes: "Inflation fears will cause big Fed worries, but if we are right we will see the core rate settle down 3-4 months from now. So that fits with market unrest here, and then the return of a healthier bull market in a couple of months."***

Statistics show that we'll have another down market next month with lower lows than this month. A falling dollar should raise the value of foreign stocks & currencies, and it might be a good idea to put money into a savings account or bonds for the next few months. More statistics show that the second half of this year should see a happy ending, but aren't specific as to when. My guess right now is that we'll see an honest bull market near the line between the 3rd & 4th quarters, or mid-August. Until then, don't be fooled! Any run-up in prices may be short-lived, and I'd be ready to jump with stop limit orders.

As if this post shouldn't get any longer, more oil speculation is making me sick! A member of OPEC mentions that he will suggest a reduction in production next week. So, what do we see today? Commodity traders are buying up the oil supplies... er futures in anticipation of what might happen. And, of course, we'll see the results of these future prices in our present-day gas pump prices. When things calm down and we discover that the production cut won't do much to supplies, the futures prices will fall while today's gas pump prices stay high. If no news happens for a week or two, then the refiners will timidly edge their prices down in free-market competition.

Ugh, feeling a bit queesy in disgust. On the bright side, all the Bulemia I get from reading about oil prices might help me drop those 50 pounds I've been meaning to shed...

1 comment:

Anonymous said...

Lose it.