My Bold Call

We have seen the market bottom. Dow 7882.51 is my prediction for the Dow low of 2008 and probably 2009. Bottoms are marked by extreme volatility, which has been a proverb for the month of October but has eased now from a VIX high of over 80 to the still ridiculously high of about 65. It is subsiding nonetheless. Funds typically end their fiscal years in October, so selling to lock in profits and realize losses fueled what was already a tenuous news month. Moreover, I believe that mutual and hedge fund redemption are "baked in" at this point. In other words, I think that managers are anticipating future redemptions and have raised sufficient capital to meet demand. That is just a gut feeling though.

My other reasons include a better than expected slow down in GDP growth and the Fed's recent 50 basis point cut on the overnight rate. It looks as if the federal bailout is going to sufficiently thaw the credit market, but that will still take time. I expect the stock market to begin a rebound as the economy lumbers to a halt and then begins to ramp up again toward the end of 2009.

Next week will be volatile again. I think that Japan's bank and the ECB have meetings next week (not sure though). If those countries (and China) cut rates, foreign trade will be bolstered and we can avoid a serious global recession. In addition, we have a presidential election. I will be buying on dips next week. I finally have some conviction, even though I expect some more downside--commercial real estate still has a way to drop--but I do believe that banks are poised to see record profits in the next three to five years. And as unbelievable as it sounds, I like KMX. It along with anything auto-related is completely unloved. I believe that KMX will weather this storm and that it represent a good long-term play.