thanks once again. I guess we'll play the waiting game now, also when it comes to stocks; the european markets are all down 2+ % today so far, anyone up yet for trying to catch falling knives? I wonder when it will start to be a good time for picking up bargains; not for a while yet it seems....

Many investors are finally waking-up and realizing that this is going to be a US lead global growth slowdown and not isolated to the USA. I expect the UK and the EU to follow the US with Asia slipping in the second half of the year. Perhaps after the Beijing Olympics.

Demand for ag commodities still expected to be strong on the back of larger populations, rising incomes and bio-fuel demand.



Source: Goldman Sachs Commodities Research
January 18, 2008

Sniper here. Well Mr.Bill your sub prime bump in the road looks pretty big now. Sort of looks like a mountain. This is a global crash and will lead to a nuclear war. So get ready to welcome "Hell on Earth".

Whatever. Have a nice life just the same.

LOL nice riposte, however I agree about much of the rosy sub prime analysis in the main stream media, I don't agree with the nuclear war.

NOTE:
1. I don't rule out the markets rebounding in nominal terms anyhow.
2. I don't rule out the possibility of nuclear war.

I hope no one is getting slaughtered too badly, someone close in the family (who I had warned very seriously 3 times in about 4 years) has lost 50% of their assets due to heavy gearing

Time will tell, but I will have to remember what a bull trap feels like when it is unfolding (Fall 2007). It has a distinctive emotional tone to it and it was called correctly here.

Despite the ugly mood right now, I think there should be some good stock buys in coming weeks and months in companies with "durable competitive advantages", especially in industries with high barriers to entry. I like rails, infrastructure, utilities, energy and agriculture.

No real shitkicking yet as I'm only down 3% YOY. (thank GOD half my portfolio is cash) CEF.A has not moved down enough to buy back in. I do think (hope) gold and silver are going lower and I hope I can get back in. I expect that the NYSE will be in for as wild a ride as the TSX was today. A ride of sheer horror!!!!!!

DONT PROGNOSTICATE ABOUT NUCLEAR WAR (not in the economics forum anyways)

Drew

Things will be wild for a while, but there is an equilibrium somewhere, we just need to find it. Stock prices are just based upon supply and demand. At some point the buyers will come in. Where? I don't know. There will be some great deals, though.

I'm still trying to figure out why people are shocked when recessions occur every seven years or so and tend to follow dramatic rises in the price of oil. It happens over and over and every time people freak out like they had no idea it was going to happen. The recession lasts 12-24 months and then a period of economic growth re-starts. In the recession, though, people are convinced it is going to last forever, it will never end--economic growth will never return.

It seems to me that if you are looking at a market crash precipitating a recession, that would be a great time to crank up regular investments in an IRA or 401(k) accounts (just broadly across the whole market) and then benefit from dollar cost averaging as markets recover. If you are more than 10 years from retirement, ultimately the market downturn should be a great chance to get some strong long term returns. Fear has a way of obscuring that common sense approach, however.

Today surprisingly enough will be a selective buying day. S&P500 futures show a low of 1255 which is approximately the 0.382R that we have been expecting since July. We would have been there by now had the Fed not started cutting rates in August and again in November that set us up for the Bull Trap that ensued. This late rally moved the 0.382R up to 1269, but what’s 14 measely points amoung friends? I would expect a surprise 50 bps rate cut by the Fed today before the market opens based on the bloodbath that we have seen in Europe and Asia both yesterday and this morning. Some financial stocks that have been beat down may then see a rally on the back of short-covering and option market makers hedging their deltas. This is, of course, not the bottom of the bear market, but a dead cat bounce.

The global growth story is sort of unraveling at its seams and this is not surprising. Many investors had not only bought into this outlook, but overpaid handsomely. If the global economy is growing by 4-5 percent per year – and emerging markets by 10% - then even starting from a very low base if those stock markets are going up by 100-200% - not individual shares, but whole indices – then it does not take long for those markets to reach fair value and then become overbought. By the time you have P/E ratios of 50 or higher – again for whole indices and not just out-performers – they are in bubble territory where they are pricing in perfection. A US lead global slowdown is not perfection for growth stocks heavily reliant on exports.

Especially the high beta stocks will be hit the hardest as they profited the most over the past several years on the back of the Chindia growth story as well as their strong demand for commodities, metals and energy. Long-term this should result in excellent entry points into those sectors for long-term growth and resource depletion. In the short-term these markets are going to be hit below the belt as investors bail on the good and the bad.



Source: Goldman Sachs Commodities Research
January 21, 2008

Luckily, we have been prepared for this eventuality and are well-positioned to take advantage of any bargains as the market gets over-sold. However, in the short-term we continue to make margin calls on core, open strategic positions, and those are starting to get costly. Of course, it also exposes us to re-funding risk as our counterparts may not have our appetite for risk, and when funding gets scarce they will be looking to close open risk positions. Some of those positions are now down 20% YTD and that is a marked to market loss in the hundreds of millions that needs to be funded. What can I say, but senior management was warned well in advance of this eventuality, so it is their dime at risk. From the active trading side we have been calling for this, so now we are just managing the fall-out.

So you could say that for me it is the best of crisis and it is the worst of crisis. Personally I am fine. From the trading side we’re okay. A lot of our collars - selling calls and buying puts - expired worthless last year/this year already, and those would be nice portfolio insurance now. From the strategic point of view though we are obviously on our back foot and exposed to the carnage in the market through our debt position. Therefore, the Fed’s move today – perhaps coordinated with the ECB – would be welcome relief on the funding side.

Good luck to everyone else. This is a trying time for many that have only know bull markets and good times! Investing is easy when markets only go up and buying on dips works... until it doesn’t! ; - )

UPDATE: just as a reminder



Cash Rebates On FX Trades

Whats your feeling Mr Bill? Will the S&P 500/DJI and FTSE give back some of their losses or are we in free-fall?

Well, 1255 for the S&P500 has been my target all along, so I would like to see it bounce slightly from that technical level. A cut in Fed funds might facilitate that. That would be a 0.382R.

I cannot watch all markets, so I tend to use the S&P500 as a proxy for other US markets. But I assume they are moving largely in tandem at the moment. Whereas US futures are down 4.5-5% at the moment, FTSE futures are down about 1% here now. Of course, that is largely as the US catches-up to European and Asian losses on Monday and overnight.

There is no reason to call for a bottom at the moment. Some stocks are still priced high either looking at YOY gains or P/E ratios. There should be more room for additional downside depending on corporate profits in Q4'07 and the outlook for 2008. I do not think we are there, yet. Maybe a pause on the expectation of central bank relief and government stimulus, but then a resumption of the downtrend as these either disappoint or fail to address the real underlying problems.

The problem is that all asset prices were looking expensive on a relative or historical basis, and there are no cheap assets to switch into at the moment. Other than cash. That looks like the best bet at this time other than taking directional bets by shorting stocks or indices, and that is not a game I want to play if central banks are getting ready to drop rates. Oversold stocks can jump 10% in a single session on either short-covering or as option market makers adjust their delta hedges.

We are approaching fair value in some stocks. A long way from there in others. And no where near oversold in many! No, now is the time to be extremely conservative and look to capital preservation until a lot more pain has been inflicted and lessons learned. But if you were short some stocks then I would be looking to close those ahead of the Fed just in case.

I took a flyer on Citigroup, but in small. Mad money that I am prepared to risk on a relief rally following any central bank move. But would look to dump it out again on a +10% move-up. Just sort of an intellectual exercise to force me to look for over-sold stocks. Otherwise I might stay on the sidelines too long and miss something. Maybe time to update my wish list just in case? ; - )

UPDATE:
Another way I like to look at it is that on average stock markets historically return 8% p.a.. So if a market declines by 16% it is basically wiping out 2-years worth of historical gains, and needs to go up by 32% to make-up for those losses. Or 4-years worth of historical gains to come back to break-even.

Investors have been spoiled with multi-year double digit gains in their portfolios as central banks and governments tried to keep their economies expanding faster than trend using fiscal and monetary tricks. Now I would assume we need several years or more of below trend growth to balance that out. If not, then look for the next bubble to invest into!

Another way to look at it is that financial stocks were the leaders on the way down - and some are down 50% YOY now - because perhaps they were the ones that lead the rally higher and had the biggest reserves to protect themselves against this fall-out. But where are all the losses on those assets that banks sold-off because they did not want them on their own balance sheet?

Where have those losses been hidden so far? Somewhere to be sure. So just because a stock drops 10-20% may not mean it is good value. It may be a value-trap. After the NASDAQ bubble popped there were lots of value-traps that never really went down any further, but they sure underperformed the wider stock market rally since 2002. Perhaps they just didn't get it? ; - )

UPDATE II:
Fed cuts rates by 75 bps to 3.5%! Poole lone dissenter. Discount rate now 4%. One year LIBOR 3.08% indicating further rate cuts to come.

Many of us are asking ourselves "Is it time to buy?", well I am not a financial wizard but I'll drop my opinion here any way.

In bouncing around the net I stumbled on a site called Market Oracle

At the following link they had a great graph of the S&P500 index $SPX.

Market Oracle

In the 10 yr. graph you nicely see how long it took for the Internet bubble to unwind.

Hence I do not think that we are even close to the bottom as this problem is even worst.

But then I am not an Oracle and could be wrong

Speaking of value trap Mr. Bill. Take a look at these two.

ESLR
FSLR

Solar plays.

Well now it seems the analysts are back peddling and saying that since oil prices are looked to back off due to a recession in the US they do not see alternate energy doing well.

They are getting hit hard and will at some point look interesting also.

Wind also worth looking at.

What about canned foods? You just need to keep it somewhere dark, low temperature. It's shelf life is well in excess over 20 years! By the time overpopulation kicks into gear and people are starving you might just have some valuable stuff.

It could be morally reprehensible though ...

If you read The Ruff Times in the 1970s they were telling you back then to buy freezed dried food and keep it in your bunker. Well, you would have spent the best part of the last 30-years in your basement waiting for the world to crash and eating tasteless junk! And naturally you would have never invested in stocks because they are 'just' pieces of paper. Timing is everything!! ; - )