Rational Advisor

Which way is the stock market heading over the next 12 months? Down, Definately down, No, wait Up, Way up!

At any given moment you can be sure that someone is calling for the stock market to hit new highs. You can be sure someone is expecting the stock market to fall flat on its face, The truth is that nobody really knows.

What am I hearing from analysts

In a report that crossed my desk from a Canadian brokerage house. Their analysts warned that “Fundamentals are deteriorating”. They cited numerous red flags

- the increasing Canadian dollar, could hammer profits of export oriented companies -= future quarterly earnings season for these companies will be a lot tougher than the past, when the C$ helped them. Thsi woudl mean layoffs, we are already seeing them in the auto sector, and transp[ortation. As you get more layoffs, this will impact house prices etc.

- Inflation worries - with Oil still up, and grocery prices moving up because transportation is more costly, they do not see a rapid drop in Canadian interest rates.

- Lower appetitie for risk. combined with tighter liquidity, could spell the end of the private equity boom that recently helped the markets.

- The Bear Stearns hedge fund debacle could be just the tip of the subprime iceberg. With hundreds of billions of dollars of variable rate mortgages resetting at higher rates this year and next.

But hold it before you get all stressed out about this

Here’s another report from a bank based brokerage house

- Global economy seldom been brighter, which shoudl mean strong support to commodity prices

- More M&A as companies need to boost theri profits and can only do it now by purchasing other companies

- High C$ woudl help stocks by pushing down import prices - the companies can now get equipment and goods cheaper from the US.. This will keep a lid on inflation, and stop the Bank of Canada from raising rates.

- As for subprime - it’s over

So there you have it. The markets are going lower, no they are going higher

Remember - Nobody knows.

Rational - I think that terrorists and those who discriminate just don’t get the big picture, because at the sub-atomic level, we’re all pretty much the same.

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