9/3T8:06 New & Notes

RCM Comments: Review of the situation...

I stated 4 weeks ago that I believed the markets were caught in a counter trend rally. All the trends that were well established in the equity markets, commodities, and currencies had abruptly changed course. The question we must answer is whether or not this is a typical shakeout in the overall bull markets in commodities and a necessary oversold rally in the bear market in equities. The jury is still out, however, as the Foreman of this jury I will tell you that we are leaning to convict. Here are some of the issues to remember:

-The Standard & Poor's 500 Index, which had the worst first half since 2002, added 0.2% this quarter, the only gain among the world's 10 biggest markets in dollar terms. Shares in the benchmark index for American equity climbed to an average 25.8 times reported profits, the highest valuation in five years. The last time that happened, the S&P 500 fell 38%

-The "Reported profits" are dubious numbers at best as we still do not know the entire depth of the banking crisis which will inevitably take profits much lower before all is realized.

-September will be the month of EPS pre announcements that should be negative across the board. The banking crisis rolls on, retail sales look weak and the technology sector remains questionable.

-In fact, the technology sector is leading the way lower over the last week as key leaders break down out of major tops or are becoming suspect e.g. RIMM, BIDU, AAPL, PCLN, ISRG

-Yesterday was a key distribution day complete with inside out reversals lower on volume in all three major indices.

-Each counter trend move during this bear market in equities has needed 7 to 9 weeks to complete. We are in week 8 of this move and we are now looking for signs of a direction change. Yesterdays reversal lower does not bode well.

This just in...A case for why commodities are well oversold:

WSJ reports Hedge fund Ospraie Management, one of the biggest players in commodities, said it is shutting down its largest fund after significant losses. The Ospraie Fund fell 27% in August alone due to bets on oil, natural gas and structured products, and the fund has been selling off its holdings over the past three weeks, possibly contributing to a decline in commodity prices. The fund, whose assets peaked at $3.8 billion late last year, is the biggest run by Dwight Anderson, a veteran commodities investor. In a letter to sent to investors Tuesday, Mr. Anderson said, "The losses were primarily caused by a substantial selloff in a number of our energy, mining and resource equity holdings during a six-week period characterized by some of the sharpest declines in these sectors in the past ten to twenty years." The fund was shut down, the letter said, because any loss greater than 30% triggered a provision that allowed investors in the fund to pull money out as they wished. The fund's closing is a blow to Lehman Brothers (LEH), which bought 20% of Ospraie in 2005 for an undisclosed amount.