My general expectation for the the US equity market for a couple of months now has been that the market would stumble along the bottom, that the low was in give or take, that there would be a large bear market rally that would be followed with another run back down to the lows, give or take.
Most of that has been right but I do believe there will be a large rally, larger than what we have seen so far but for now it has not happened. On days that the market goes down people on TV are pessimistic and on days the market is up people on TV are optimistic. Regardless of whether we have a really big bear market rally this is exactly what a stumble along the bottom feels like.
Last week I expressed concern about protectionism starting to percolate. If that comes, as I said last week, I would make a change or two within the portfolio and I still would but for now we continue to stumble.
Hopefully you are in touch with what appears to be unfolding in California with the IOUs, the budget problems and the short term cash flow needs. I don't know what will happen or whether or not the state will default on its municipal bonds. I don't have exposure to California muni bonds so I don't have to know. In a video post a couple of weeks ago I mentioned having sold the coffee ETN from iPath because I didn't want to have to even think about what would happen to the ETNs on a credit downgrade. I have been suspicious of the yields available in the muni market for a while and maybe California is a head fake or the real thing but I like not having to worry about being right.
Obviously you can't do this for everything and you may miss a couple here and there but Barclays has been wallowing for a long time and more bad news certainly wouldn't be a surprise to anyone. Ditto for Cali.
These are things that are easily addressed, actionable and solved on a micro level for anyone so inclined. If Barclays and California both default (very low probability) then anyone selling ahead of that would have taken the problem head on and solved it for themselves.
This contrasts with all the attention being given to bonuses and proper uses for TARP money. I'm not arguing either way about about how messed up these things are or are not but there is no problem to solve at the micro level here. If you still own Citi form before you are down 90%, maybe more, selling a stock after a 90% drop is cleaning up a nuisance not solving a potential problem.
If you want have an opinion that is fine obviously but the time spent formulating that opinion is unlikely to help you figure out anything about your portfolio. A lot of other people are rolling up their sleeves on this stuff but I do not see the point.
Proud Member Of
Random Roger
© 2009 | Gadget Theme Blogger Template
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
10 comments:
"A lot of other people are rolling up their sleeves on this stuff but I do not see the point."
That is because you are not a value investor. This is how smart people acquire assets for a mere fraction of their intrinsic value. They could care less about "markets." They perform their due diligence and make sound, long term investment decisions. Embedded in that decision is a margin of safety that prevents disaster.
"If you want have an opinion that is fine obviously but the time spent formulating that opinion is unlikely to help you figure out anything about your portfolio."
I would respectfully disagree. Espousing an opinion is similar to a Christian proselyzing and reading their bible everyday. It offers an alternative way to approach investing and at the same time reaffirms a passive, defensive investment philosophy.
I think you've skipped from Roger's topic of "cleaning up the mess created by the market drop" to "new opportunities due to that market drop."
not sure how you get value investing out of compensation indignities.
Wouldn't California be considered "too big to fail" ?
didn't the OC default in the Citron scandal, or do I have that wrong? If it did default it has since come back. Russia defaulted once, Argentina a couple of times and Ecuador is working on its second or third default right now.
I have no doubt that California could recover from their financial issues..
However the federal government might feel that now is not the time to let Cali fail. Doesn't this $800B stimulus package have mucho dollars for states?
As the 6th (or so) largest economy in the world, I would think failure could result in problems elsewhere..
The question is: Are these normal times?
Roger: "didn't the OC default in the Citron scandal, or do I have that wrong? If it did default it has since come back. "
Yes, Orange County went bankrupt in 1994; but CA has 58 counties, plus a lot of statewide obligations... plus everyone is still a lot more leveraged now than in 1994, right? So I don't think the impact is comparable.
To be specific, CA had $135 B in statewide general-obligation debt as of last fall. Not as bad as AIG, but not a problem the markets can absorb gracefully at this point, I think.
That said, I went long on CA munis once I felt that the risk was priced in (a couple of months ago). A bailout would do nicely for me.
You guys suffer from group think. The reason muni yields were so high, was that their prices were depressed, hence value. Geez. Stick to watching TV for your research.
Roger: It is not clear what you are advocating or hinting at with regard to the California budget crisis and the potential impact on munis. Are you saying that munis as a sector should be avoided --- that a California bond default will drag down ALL muni ETFs and mutual funds --- or are you saying that one needs to be more cautious about the specific muni ETFs and funds one is invested in, that one should do more homework and avoid muni funds with significant exposure to problematic states (e.g., California, NY,etc.)?
Please clarify.
i'm not advocating anything. this is just an example. The state is on shaky ground and the ground has become shaky slowly over a long period of time. a default is unlikely but more likely than anyone thought 12 months ago. if you own Cali bonds you need to stay in touch with the news and then be correct about what will happen. that need can be avoided by not having a position--as an example.
Post a Comment