Ted Olshansky began his investment career in 1968 as a registered broker with Dean Witter & Co., Inc. Mr. Olshansky was a market maker and member of the Chicago Board Options Exchange (CBOE) from 1975 to...
Publish Date: May 26, 2007
Ted Olshansky
If you had a Memorial Day get together with family and friends, I hope you didn’t invite Alan Greenspan. As if he didn’t learn from his ‘irrational exuberance days”, he proceeded to now take on China’s market with his concern about a “dramatic contraction”. The U.S. markets sold off on this remark.
Forget it!! We are in a bull market and while China may have gotten ahead of itself, it may be wise to consider from whence it came; from a backward nation to the 21st century on an express train. They had a lot of catching up to do.
Let’s take a look at a few positive and negatives facing the US markets.
During the end of the last bull market, U.S. retail investors paid $132 billion into equity funds during the first four months of 2000. In the last 12 months, the small investor has withdrawn about 500 million from U.S. Mutual Funds. (Richard Russell, Dow Theory Letter May 2007) Should the small investor enter the market in force, this could give a tremendous lift to the averages. Also, short interest (stocks borrowed with a hope of decline) is at a record level. This too favors the bull as these shares have to be bought back eventually. And China shows no sign of pulling money out of the U.S.; rather it has invested 3 billion with the Blackstone group.
On the negative side we have housing worries, rising oil prices and the weak dollar. Taken in order, the housing problem affects many aspects of our economy from banking to retail sales and autos. Many people for whom their house is their single largest investment, may have to cut back on spending once they find out that house isn’t worth just what they thought it was. And many houses are languishing on the market with no buyers.
Of course, oil prices are a real psychological threat. At what price price will consumers begin to cut back on their consumption? Fewer car trips and more costly airline fares all have an impact on the economy.
As for the weak dollar, the concern here is that this could cause some oil producing countries and China to stop buying Treasury bonds. This could further weaken the dollar and the Fed would have to raise interest rates to strengthen it, thereby hurting the economy and possibly exacerbating the housing problem. As for now in typical bull market fashion, the market is ignoring the bad news and focusing on the positive.
Remember stocks as well as markets often go to extremes. (Both on the upside and the downside)
Bullish Bearish Number: 75
Question: I was long a stock and short a call. . The day before, the dividends on my shares were called away from me and I lost the dividend. How can I prevent this from happening again? Marla Franklin, Northbrook Illinois
Answer: But you made money on the position – What you could do is buy in your short call and sell another call further out and at a higher strike price. This will give you an opportunity for more income.
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