Mid Feb Update

Macro Outlook:

In my opinion, markets appear fully satisfied by positive economic numbers and upbeat on the Federal Reserves message. Recently, it is not surprising to hear increase in GDP growth, solid labor market and finally positive trending markets. Most data suggests that market optimism is already “baked in” the market pricings. These behaviors are demonstrated by the strong recovery in US equities sparked in summer 2006 rally. Since July 18 2006 the S&P 500 is up 19%. This further proves overall market complacency and asks if markets are too pricey.

Skepticisms does not hurt:

If one feels that markets are too content then it is appropriate to ask: What is the catalyst for a negative sentiment? Plenty and that’s the data to seek while being long. Here is

Here is one view on challenging the positive GDP data:

http://bigpicture.typepad.com/comments/2007/02/revisiting_gdp.html

Other simple takeaways:

Earnings reports resulted in a usual stock specific volatility but net positive as a whole. (as headline highlight Dow making all time highs). Macro factors are not heavily addressed as crude attempts to stabilize, dollar and 10 year yield are pausing.

Dangerous Terms:

At the same time, the following phrases are all too common: Deficit, Iraq, globalization and inflation are few terms floating around as concern in the US. Certainly, I did not forget about terrorism which persists daily reporting and bears argument these terms are heavily pointed to.

Personally, I don’t think discussing worries increases ones intelligence or enhances market trading skills. Unfortunately, it is only human nature and we all have our moments. It is important to overcome less-refined reactions but rather accept it as a persisting challenge.

Point to consider:

Regardless, the stock market is a different story in terms of timing and positioning. Those exterior points are important in the media and politics but not necessarily in seeking significant market return. So I will continue by pointing out that impact stock and sector behavior. Eliminate the general noise and proceed with actionable ideas.

ACTIONABLE THEMES:

The bears keep on fighting especially in regards to a cooling housing market. It is my belief that timing housing downfall is not that simple. And reaching a conclusion of shorting all aspects of housing is not a wise idea either. For example, Sub-prime lending collapsed and I am waiting for further declines. Homebuilders recovered after a strong correction but a shaky risk/reward. Finally, REITS are lofty and highly loved but not attractive long and soon due for downside correction.

I prefer to address the stock specific issue first than managing positions and timing. (FED and AHM) – Two shorts offered in previous posts and maintain a negative bias at current levels.