Blunt and Bearish

09/09/2005 12:00 am EST


Mark Leibovit

Chief Market Strategist,

Brutally honest can best describe Mark Leibovit, one of the market's top timers. Here, he doesn't mince words as he discusses the aftermath of Katrina, market manipulation, Wall Street profiteers, the Plunge Protection team, and the market's lack of respect for human life.

"The worst natural disaster to hit the United States and Wall Street are profiteers at work grabbing up construction, material, engineering, and alternate energy shares. The market has little or no respect for human life. Hardly seems right does it? Meanwhile, the markets have responded to the upside as a combination of an oversold condition, cycle and expected market manipulation by the Federal Reserve, and/or the Plunge Protection Team all converged following the assault by Katrina. Folks, the market is in a very precarious position and though we hope to pinpoint the exact moment of its reversal (possibly quite severe) to the downside, we cannot assure you it won't come as a surprise.

"There is no doubt a cleanup or restoration of New Orleans lays ahead, one that will create many jobs and put pressure on material availability. As a result, we may be in the throes of a commodity explosion especially for basics such as copper, lumber, and cement. In a more seasonally friendly environment, e.g., November forward, we would be much more ecstatic about upside possibilities. We just can't get too excited about the market this time of year. The 'boys' on Wall Street need to get stocks up now so they can short them. That's the bottom line.

"We do not feel the Feds will be able to keep the financial levies from breaking as financial storms begin to strike the marketplace. Seasonal tendencies, the surge in fuel costs, the 'fear' of an economic slowdown, the immeasurable costs of rebuilding in the wake of the storm, the destruction and/or immobilization of many, many unreported oil wells, the disruption of trade and shipping, and the potential for another terrorist attack coming at a time when we are vulnerable or distracted, will all come together and lead us south.

"We know that forces are at work that engineer rallies at times like these. Traders have viewed the devastation in the wake of Hurricane Katrina as a sufficient catalyst to cause the Fed to pause or even stop rate hikes. We saw this phenomenon during the 2004 Hurricane season and we're seeing it again now. How long will it last? Not very long in our view. A few days, a week, possibly two weeks? Once we turn again back to the downside, it could get awfully nasty, but it should be no surprise when it comes.

"Our current strategy is to be as defensive as possible. We presume that in the weeks ahead, the Dollar Index will remain weak, gold will be strong, and the Treasuries will be strong as money flies from equities into the 'safer' bond market. Our target for the Dow Industrials is still 9900 with potential to 9400 or lower in the weeks ahead, so caveat emptor! We would exercise extreme caution between now and the end of October and recommend you consider easing into new short positions for the major stock indexes. That's pretty much the bottom line. We would be building short positions at this time."

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