Do Not Trust the Main Stream Media

I find the main stream media ludicrous. Unfortunately many sites including marketwatch.com is proclaiming that the markets are in a rebound mode. Excuse me? What rebound? It is these types of proclamations that gets the average traders in trouble because many trust the main stream media to be objective and honest. Everyone loves to have the economy expanding, consumers spending, the stock markets rising. The realistic view would be to accept that this market is broken and to encourage the market participants to protect their capital or lead them into the appropriate directional trade. Instead, many articles are flowered with "hopeful" rants about how the market is near the bottom, how everyone should buy defensive sectors, or how everyone should buy the "dips" as they are on sale.

I sound like a broken record but at critical market junctures, the media, the pundits, and just about every investors are wrong. Just remember, though it may be painful, and if you were into stocks during the 2001 meltdown, what the experts were encouraging the investors to do. They encouraged investors to buy the dips as the stocks were on sale, invest for the long term, and that the bottom was near. Not until Nasdaq was down over 80% from its highs and S&P 500 was cut in half did the market experts proclaim that the market would not recover, just near the eventual bottom of the market, they finally gave the all clear signal for the investors to "sell", of course, they should have been buying.

If you keep your wits about you and stay contrarian and go against crowd psychology of the markets, you should do well. I do not advocate just playing the contrarian but to instill discipline and research in your decision making process in the markets. What is the markets currently telling you? It is clear- we are in a down trend and no one knows how long this will last and no one knows how severe it will be.

One last note on Jim Cramer's Mad Money show. I think that show is the most dangerous show on the media. If you check back to Cramer's picks harkening back to early January, you would be wiped out by now. He proclaimed that the three stocks for 2007 were 1) New York Stock Exchange (NYX) down 30%, 2) Apple Inc (AAPL), 3) Cisco (CSCO). Additionally, his other picks including Mastercard (MA) which he personally said he would eat "crow" if the stock went down after its recent earnings report and encouraged the masses to buy, was a disaster and a lot of people lost money. Since the Chinese market crash few weeks ago, he has called the stock market bottom on 12 different occasions and he is encouraging people to buy the dips right now. So please becareful. He is dangerous and sometimes, I question his "expertise".

So today, the market is staging an expected small bounce from yesterday's painful sell off. I do not think it will last. If you are short, this would represent a good point to add to your short positions. The pain in the mortgage markets will continue to spread. Most obvious aspect is that it will dampen consumer spending as well as further adding fuel to the housing market's woes by increasing supply. A good short candidate right now is Countrywide Financial (CFC) and Washinton Mutual (WM) both of which have significant exposure to subprime and Alt-A loans (loans for credit worthy individuals that could not get main stream financing). Both of these loans represent people who bought houses on shaky financial foundations and are most likely to default. Additionally, when you see the insider selling intensifying at CFC recently, and ironically coincing with current subprime lender meltdown, especially by their CEO Angelo Mozilo, you have to raise your eyebrow. Especially since he came on CNBC yesterday with Maria Bartaromo and said CFC would be in better shape as subprime competition would be reduced or eliminated. Excuse me? Subprime is still palatable for CFC? Also, he added that the mortgage markets will face liquidity crisis. So he gave a double speak to probably prop up the stock while he and his upper management cronies dump. We will see whether CFC will weather this storm. I just think something smells fishy here.

Good luck today.