Back from a long blog vacation...
What a long vacation that was! It happened but now I am back in the writing mode. So much has transpired since I last reported but suffice it to say the world is a different place today, at least as far as Wall Street is concerned. Several century-old firms with incredible history are now just history themselves. Who would have believed it?
The last post to this blog several months back noted all that had transpired leading up to the Bear Stearns implosion and JP Morgan Chase ‘takeunder’. I noted the potential for ups and downs in the market with the expectation of lower prices ahead. That is just what we saw happen. Along the way I have employed various techniques and tactics to profit from this volatility with limited success. While I am pleased to be ahead of the S&P this year I am displeased to be at a net loss. It’s very difficult to navigate these waters but it can be done. And I believe by the end of the year we will be in much better shape. Maybe all will all be fine with the Federal Government backstopping JP Morgan Chase, Fannie Mae, Freddie Mac, now AIG, and possibly more. While such moves buy time, they also just transfer the problem to another holder. Other than buying time what magic will be expected of the Feds? I’d like to see the sunny ending but I am having difficulty with that vision.
Backing up a few months, I noted that China as the new world leader with the amazing economy and soaring stock market would top with the Olympics. This is seemingly unrelated to the market but many major social phenomenon have coincided with market tops and bottoms. (Remember the Millennium celebration in the US and how the market topped with it?) I was wrong though – China topped well in advance of the Olympics. And to digress for a moment, with billions of people in China, couldn’t the authorities there find a little girl who is pretty AND can sing well?
As China topped, the broad global expansion lost some oomph. More oomph has been lost with the US and Europe slowing as well. Leave it to Wall Street to do the rest. It wasn’t good enough to lose money the old fashioned way – they found newer and better ways to lose money. The key to this banking crisis is the headwind that will work against overall growth as banks are more worried about staying in business rather than expanding their businesses. And if loan growth stays flat or shrinks, so will credit expansion, and so will economic growth. Until the dust settles on the latest LEH-AIG-MER implosion I believe we are best served with minimal exposure and a short bias at that.
There is always the risk that the market will make an explosive move upwards. However, with the unwinding of enormously leveraged balance sheets at the aforementioned firms (and probably others who are counter-party involved) we must respect the risk of a major decline. Yes, the horses may already be out of the barn as the market is down over 20% from its 2007 peak and has retraced 50% of the gains made from the 2002 lows. It’s possible that this is the time to be aggressively buying and not cautious. But with the risks out there I believe that it is better to be on the outside wishing we were in rather than being invested and wishing we weren’t. There will be opportunities and I will jump on them but for now we need some sanity and calm to return to the markets.
Stay tuned – it won’t be boring.
The last post to this blog several months back noted all that had transpired leading up to the Bear Stearns implosion and JP Morgan Chase ‘takeunder’. I noted the potential for ups and downs in the market with the expectation of lower prices ahead. That is just what we saw happen. Along the way I have employed various techniques and tactics to profit from this volatility with limited success. While I am pleased to be ahead of the S&P this year I am displeased to be at a net loss. It’s very difficult to navigate these waters but it can be done. And I believe by the end of the year we will be in much better shape. Maybe all will all be fine with the Federal Government backstopping JP Morgan Chase, Fannie Mae, Freddie Mac, now AIG, and possibly more. While such moves buy time, they also just transfer the problem to another holder. Other than buying time what magic will be expected of the Feds? I’d like to see the sunny ending but I am having difficulty with that vision.
Backing up a few months, I noted that China as the new world leader with the amazing economy and soaring stock market would top with the Olympics. This is seemingly unrelated to the market but many major social phenomenon have coincided with market tops and bottoms. (Remember the Millennium celebration in the US and how the market topped with it?) I was wrong though – China topped well in advance of the Olympics. And to digress for a moment, with billions of people in China, couldn’t the authorities there find a little girl who is pretty AND can sing well?
As China topped, the broad global expansion lost some oomph. More oomph has been lost with the US and Europe slowing as well. Leave it to Wall Street to do the rest. It wasn’t good enough to lose money the old fashioned way – they found newer and better ways to lose money. The key to this banking crisis is the headwind that will work against overall growth as banks are more worried about staying in business rather than expanding their businesses. And if loan growth stays flat or shrinks, so will credit expansion, and so will economic growth. Until the dust settles on the latest LEH-AIG-MER implosion I believe we are best served with minimal exposure and a short bias at that.
There is always the risk that the market will make an explosive move upwards. However, with the unwinding of enormously leveraged balance sheets at the aforementioned firms (and probably others who are counter-party involved) we must respect the risk of a major decline. Yes, the horses may already be out of the barn as the market is down over 20% from its 2007 peak and has retraced 50% of the gains made from the 2002 lows. It’s possible that this is the time to be aggressively buying and not cautious. But with the risks out there I believe that it is better to be on the outside wishing we were in rather than being invested and wishing we weren’t. There will be opportunities and I will jump on them but for now we need some sanity and calm to return to the markets.
Stay tuned – it won’t be boring.
posted by David Geller at 9:20 PM
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