Market Musings 2007 12 16

Today is Sunday and tomorrow starts another market week with option expirations.

The market volatility has increased as the market participants are nervous about the state of US economy. There is a view that implies a significant slowdown and hence news of slower growth, consumer spending and lower corporate earnings. Higher inflation rate at wholesale and retail levels would reduce if not eliminate the possibility of further rate cuts. Dollar should stabilize also.

But, we will all muddle through and world is not coming to an end. So, I suspect there will be market volatility and possibly a market dip of up to 5% or so to get some selling of the stocks that will be hurt by the stagflation that may be experienced next year. Again, there is going to be greater difficulty in passing on the increased pricing except for energy and other products or goods that are energy intensive.

Stocks like AAPL, RIMM and ISRG may be somewhat immune as they have products that will sell in the forthcoming weeks and months. Energy Services stocks should do well, but, they will be facing more difficult comparisons and a slowdown in the energy sector as major projects are getting too expensive as the pricing of goods and services in the energy services is getting out of sight.

So, a slow down in capital spending in the energy, pharma and other sectors is quite possible. All this is not welcome news for bulls and not so good news for bears as we will all muddle through...

Just keep in a good cash or cash equivalents without exposing your self to the bond markets. Emerging and developed markets like Brazil, Canada, Australia and India as well as East European Economies will do better than US economy. China is doing well still and continues to grow, but, the stocks are overpriced there. And, it may be like how Japan was in 1989 when all the banks there were the largest in the world.

So, just look at businesses that are winners in US as well as in emerging markets in terms of gaining market share and earnings.... AAPL may be trading stock, as it is getting pricey in terms of market cap. And, one does not need two ipods or two iphones. RIMM's business model is better, as emerging market countries adopt the mobile e-mail's etc.

Health care has great fundamentals, but, I see difficulty in maintaining profit margins, if democrats come in power. And, the cost of medical care continues to explode in USA. Green Energy firms would gain market share, but, they can not gain markets without price supports....

Best wishes for the forthcoming holiday season to you and yours.