Market Problems Could Mean Drop in Consumer Spending
Wednesday, November 7th, 2007
By George Leong, B.Comm. for Profit Confidential
The bulls and bears are slugging it out at this time given the continued uncertainties regarding the weakening housing market and credit issues. On Monday, Citigroup, Inc. (NYSE/C) announced it would need to take $8.0 billion to $11.0 billion in additional losses related to the housing and subprime problems. The news clearly supports my contention that the current market risk remains high but ignored by the bulls.
On Monday, Fed Governor Randall Kroszner scared investors after saying “.conditions for subprime borrowers have the potential to get worse before they get better” in a speech at the Consumer Bankers Association Fair Lending Conference.
The soft housing market and credit concerns could have an impact on consumer spending. The Conference Board Consumer Confidence Index fell to 95.6 in September, the lowest level since an 85.2 reading in October 2005. The concern here is that low consumer confidence could translate into a decline in spending in the holiday shopping season following Thanksgiving.
Add in the high oil prices at over $90.00 a barrel and their impact on inflation and consumer spending, and you have a situation that could blow up the markets.
Buying has been driven by some decent earnings from key companies. In addition, the third-quarter GDP report showed strong growth of 3.9% versus the estimate of 3.0%. The reading was the strongest in about 1.5 years and could mean that the economy is not as bad as believed.
My advice at this time is to be careful and watch your positions, especially those that have moved up quickly over the past weeks or months. You can protect yourself in several ways: setting stop-loss limits; buying put options on stocks or indices; or simply taking some profits off the table, especially after strong gains in the stock.
In my view, if we do see a major surprise impacting stocks, the market could be vulnerable to some major selling.
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Tags: GDP, housing market, oil prices
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.




