Archive for December 9th, 2008

I have a terrible string of exams coming up, so I won’t be writing about very much until December 16th (when they’re all over).

Here are my thoughts on the market, since I won’t be able to embed silver linings (or black clouds) into anything for a while:

  • This is not “the” bottom. Volatility remains far too high, meaning the market is still changing its mind too much. This also tells us that there are simply too many unknowns for the market to price itself properly; Will GM and Ford go bankrupt? Are there any other banks which will need a Government intervention? Will $120 billion be enough for AIG (probably not)?
  • The yields in treasuries have dropped to 50 year lows, and most T-bills are at/near or even below zero. This means people are overweight in their allocation to government debt, and are unwilling to invest in equities. What better indication of confidence than this? Investors are on the sidelines, and little good will come for the Dow Jones and S&P until we see mass participation.
  • Most stocks are not cheap. If a company’s forward P/E ratio is at 6, it’s probably because the market expects their earnings to come down – forward P/E is only an indication of a company’s guidance, which is subject to revision. See FedEx and Texas Instruments.
  • Oh yeah, and what about commercial real estate? That was the driver of the housing recession in the 90’s, and we are only beginning to feel it now – It’s not even being talked about on the news yet…

So what’s to keep the market going higher into the new year? Respected investors calling bottoms? Obama announcing more cabinet members? That euphoria is short lived since it does not necessarily translate into an ultimate fix. That’s why I’m more concerned about the earnings forecasts, which many companies are preannouncing earlier than planned.

All of that said, I think that the time is approachingĀ  in the next 6 – 8 months (once the lows are retested, and not after a 1,300 point rally in the Dow) to buy selected stocks for the long haul. It is better to be early to the market than late, because once the light at the end of the tunnel is not perceived to be an oncoming train, all of the money in the bond market will flood the equity market and it will be too late to catch the upswing.


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