Monday, October 16, 2006

Dancing With Myself

Billy Idol released the hit song Dancing With Myself in 1981. Sometimes, I feel like I'm debating with myself. So it's nice to get some feedback.

Of course, it's not always pleasant. For example, one blog reader recently said he was tired of me always being negative. I'll admit, I've been skeptical of the stock market's recent rally, but I'm not always negative. I was bullish on stocks until late 1998. I turned bearish about 14 months too soon, but it turned out to be a good call. I turned bullish again in September 2002. The market briefly rallied, came back down, then started a nice bull run that is still going.

But I am bearish once again. I just don't see what all the excitement is about. So far, the Fed seems to be doing an admirable job of orchestrating a soft landing, but I think GDP growth is likely to fall below 2% for at least several quarters--perhaps for all of 2007. And I don't believe the Fed is getting ready to cut rates any time soon. I still see inflation and inflationary expectations running above the so-called comfort zone.

It's nice that oil and gasoline prices have come down from their August highs, but I defy anyone to argue gas is cheap. Anyway, gasoline prices almost always come down after the summer driving season. Admittedly, the recent decline has been more like a plunge, but even today the national average price is well above $2 per gallon.

In the immediate future, however, two things will drive the market. The first is housing. Data on housing starts and building permits will be released on Wednesday. The market is looking for about 1.65 million starts and 1.72 million permits. The second is third-quarter corporate earnings. This is the first big week of earnings releases. While I'm not sure if there is such a thing as a bellwether anymore, several key companies will announce results in the coming days. EMC, Johnson & Johnson, and United Technologies will report tomorrow morning, as will a number of banks. IBM, Intel, Motorola, and Yahoo will report tomorrow after the market closes. Each of these companies has market-moving potential.

Finally, I want to thank Karthik Narayanaswamy for his nice comments about my blog. I now know that at least one person out there wants to see more of my musings. Turns out Karthik has a nice blog of his own called Karthik's Random Ramblings. You should check it out.