DOW falls to 9,600 as my prediction comes true

Check out my financial obvservations blog below written by me on June 29th of this year on myspace. At the time the DOW was at 11,300 and I predicted it would fall to lows of 9,600. Today that prediction came true and my prediction wasn't low enough as this market is going lower. Yea it was a guess but an educated guess. The way I calculated it was that at 11,300 the DOW had already fallen 1,700 points from its highs of the year at 13,000. I subtracted another 1,700 points off of 11,300 and came to 9,600 where I figured the DOW would end up.

Sunday, June 29, 2008 Financial Observations The economy is slow right now, gasoline now costs $4/gallon thanks to $140/barrel oil, and the financial markets are a mess. What does this mean for Americans for the 4th of July? It means less fireworks, cheaper alcohol, and more people staying at home this holiday. Trying to pick the bottom in this market is impossible and I wouldn't encourage anyone to do it. The regional banks and investment banks and brokerage firms are almost all at 52 weeks lows, and some like C are at 10 year lows. And guess what? They're going lower. The false rallies of the DOW from 12K to 13K back in April and May caused some people to think we may have seen the bottom, but now at 11,300, I believe the DOW will drop below 10,500 and could even go as low as about 9,600. Yes that is my pick and I hope I am wrong. This would be terrible for consumers, small businesses, and even large corporations who are starting to feel the effects of $140 oil. I do own some individual stocks, mutual funds, but in a difficult time as this, I will stay mostly in cash until I see signs of a strengthening economy and financial systems. I don't think the market will crash and we're not going to see bank failures and shortgages like in the 1930's before the Great Depression. But this is about as close as the US can come. The FED has made it a point to step in by opening the discount window to the banks. Without this great tool from the FED many banks could have gone under, like Fifth and Third a couple weeks ago. For the banks the problem is a liquidity issue combined with bad mortgages made at subprime (less than the prime rate set by the Federal Reserve System) levels to bring in more money. Ultimately starting last year the banks got burnt when people started to default on their mortgages in record numbers and now we are in the middle of a credit crunch crisis, housing bubble, and weak financial markets. Still, companies like Goldman Sachs have $1.02 Trillion in cash on their balance sheet thanks largely in part to the FED and in time the investment banks will get stronger. Companies like JPM are actually looking to buy other banks to have a stronger prescene in the Southeast and considering regional banks like Wachovia or SunTrust. I actually don't believe the housing market is as big of a deal as the media makes it out to be. Yea, people are losing their homes and that is a real shame that their American dream is being taken away, but at the same time people are responsible for making the payments they agreed to. My guess is most couples were eager to get a loan to buy their first home and had no idea what they were actually getting into. When cars and computers first came out, they were very expensive compared to average salaries. Only a select few could afford to have a car and I remember when computers cost thousands of dollars. But today everyone has a car and a computer, and yes most families have several of each. I think houses are no different. For so long houses have been so expensive. As soon as you buy one you're in debt for the rest of your life. But with the housing market falling bigtime the past 2 years and with more falling to go, soon I believe just about anyone will be able to afford a home. The sale of foreclosed homes will soon be through the roof, just as people losing their homes now is through the roof. Like I said I don't want to see anyone lose their home but what we are seeing is a correction in the markets which will take time. What's the solution to all of this? For the mean time I would stay in cash as much as possible. There's really nothing wrong with opening an online savings account and getting a decent return now of 3%-4% depending on who you do it through. Having a well diversified portfolio usually is a bunch of crap b/c right now everything gets killed. Shorting the market is probably the best way to play it right now, although that can be risky, but I like the SKF ultrashort financials. I say right now to buy gold because of the weakening dollar and high oil prices, commodities will continue to rise until Ben Bernanke begins the rate hikes which will probably start taking place in the fall of this year when the FED meets. I like AUY, AEM , and the GLD as gold heads back to $1000 an oz. I'm not licensed so take all my picks and do your own research. I like the energy, coal, and natural gas names too, but watch out for the refiners as they are getting driven under by the big oil companies. Stay away from tech and the financials unless its a huge up day for the DOW, otherwise I'd be shorting this market until we see some stability. And that probably won't happen until the election is over. The market hates uncertainty and that's what we're seeing everyday right now.