Tuesday, February 27, 2007


Roller Coaster Stock Market

I have been watching to see when the beautiful trend was going to end. After today it is pretty easy to say it has. In fact, I was just sitting down to write this post at a little before 2 p.m. Chicago time when I was pulling up a financial page when I saw that the Dow was down 500. The drop from -280 to -500 happened in not more than 5 minutes from what I can tell. Drudge had a siren going with a warning "Dow plunges more than 280" and next thing you know it was "Dow plunges more than 500" which is what it says right now (2.45 p.m.) with the Dow down about 380. Prices are flying so fast they can't keep up with their headlines! **Update** The Dow's plunge at 2 p.m. was triggered by a glitch in the system caused by a flood of sell orders.

So what is happening in the world that changed. First and foremost would have to be the change in policy of the Chinese towards stock speculation which brought down the Shanghai composite 8.8% today. Next we have US existing home sales increasing but prices falling and, finally, durable goods plunged. Consumer confidence set a new high which makes sense if we haven't entered a recession, yet.

Corrections are notoriously hard to gage in terms of time and price level. I do think this is just the beginning and that the most recent highs in the indices will not be breached for awhile. So reduce your exposure to equities and watch the fun. Also, don't wait to long. Stocks always fall much faster than they rise.

More later on implications for the dollar and interest rates. (Hint, I don't know but probably lower and lower.)


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