I shall tangent and remind the readers of what has transpired to introduce this storm of a market. I'm not a conspiracy theorist so if you're looking for a smoking gun, you've come to the wrong blog. The issues are much simpler than many would have you believe. And my mediocre assessment would blame the following culprits:
- New-ish homeowners that don't seem to understand that assets don't always appreciate. (I blame new-ish homeowners because anyone who purchased in the 80's knew that property values don't always rise)
- Mortgage lenders who relax their standards to increase volume without measuring the risk of their actions. Most lenders were just plain greedy, some were unethical in their positioning of ARM's and teaser loans but most explained the risks to the borrower and the borrower still swallowed the hook whole.
- Construction related companies and individuals who milked the property boom just a bit too much.
- Consumers who can't seem to keep their credit card balances in check.
OK, so we're all to blame. Notably absent from my target of suspicion is the Federal Government. As a general rule, superflous laws cause more harm through unintended consequences than good. Our politicians are typically some of the worst financial advisers this side of the Vegas strip, so anyone looking for their protection deserves the exposure. If the aforementioned parties had shown a modicum of restraint this particular asset bubble would not have occurred. Further, if consumer credit balances weren't so high, the risk associated with falling property values would have been much diminished. So the dominos looks like this: home buyers and consumers look to borrow too much; lenders oblige; the secondary market scoops up the debt and then freaks rather than servicing largely performing assets; lenders over correct on credit issuance; asset sales after write-downs don't generate enough cash to support historical operating practices; big banks crash and the general public freaks.
So here we are. Now what to do with freaking companies, a freaking public, and a government that loves to pontificate on how to cure the well freaked. For starters, go spend your money on what you need but not what you don't and certainly don't pay for anything that you can't afford. If consumer spending doesn't continue, a recession may pop from all this. That's right, I said MAY. Up to this point, we've not been in a recession and if you disagree please lookup the word recession on Wikipedia rather than arguing the fact.
In the meantime, there are a few investment opportunities that look interesting. If you've followed my ramblings prior to this blog, you know that I've been bullish on the general markets. Short term volatility considered, when interest rates are cut dramatically the market will typical rise over the next 12 months. Count on it. I think the Nasdaq in better shape than the NYSE due to the proportional difference in construction and financial companies between the exchanges. Going long on Q's is probably a very lucrative position right now. Regardless, the other indexes have been so beaten up that Spiders (SPY) and Diamonds (DIA) are probably near cyclical bottoms at this point.
On a more specific nature, I'm very bullish private equity. I'm not sure if the Berkshire will keep up pace with the Sage looking to exit his amazing career. That said, other private equity firms are probably in position for a nice up tick if they weren't vested heavily in real estate related products.
Energy will continue to fall, but other commodities may still show surprising resilience. A portion of your cash portfolio in something like a GLD fund is probably not a bad hedge for stock market volatility. I'm not a big futures fan for the average investor so stick with ETF's.
I've long been a fan of the FRO and SFL family. I think SFL is going to struggle for liquidity over the next several months and I've personally held or distributed my holdings. FRO on the other hand will see a drop from falling energy prices (oddly enough since they have to consume the stuff) and pressure from lack of leveraging capabilites for new builds. However, much of this has been built into the stock and there will be some significant price support in the low $40's. I'm personally accumulating shares under $45.
Retail will have some difficulty this holiday season but they are always the first to emerge from slowing economies so keep an eye on healthy subjects. I'm still fond of CHKE. While they don't make their products, they seem to have a good feel for what consumers like in clothing and they reward their shareholders with healthy dividends.
Finally, keep your idle cash in high interest products such as ETrade's checking accounts, Bank of Internet checking accounts, ING checkings accounts, etc. Don't let your idle cash gather dust from banks that don't value your business. They certainly need you more than you need them at the moment.
2 comments:
As the giants come down there are so many dissenting opinions about the appropriate action. Some say that action or lack of action by the government right now will determine how bad the next couple of years are going to be.
One train of thought is that the giants should be allowed to fall. The other train of thought says no that is a terrible thing to let happen. What stinks about what has happened is that those responsible have not been handed indictments or had their property seized pending grand jury proceedings. If I had robbed a bank because, “everybody else was doing it”, I would be in prison for a long time. In addition, there have been no caps placed on salaries. The same people who really are responsible will continue to make huge profits and suffer no consequences for their actions.
Since we are involved in two “military actions”, does this not weaken our sovereignty? Does this not make defending our nation harder? Where is the patriot act now? It was good enough to erode the rights of citizens and unduly punish people without due process. I would personally place the folks responsible for this mismanagement into a category of financial terrorists! They should be punished as terrorists.
I have not heard any ideas as to how we are going to prevent this from happening again. I hear a lot of bitching in both directions in an attempt to politicize this issue. I feel that our government does share some responsibility for this.
As a fellow American citizen, I don’t mind pitching in to clean up a mess. I just have a problem with cleaning it up to allow it to happen all over again and those responsible not brought to justice.
Thus far, the citizens exposure on bailout money appears pretty benign. All of the transactions to date are either brokered or likely to turn a profit for the federal government. Even the 700B on the floor seems to have exposure much less than the cash out of pocket requirement. If a property loan is guaranteed by the feds, it will either be serviced or foreclosed, both options returning the bulk of the cash fronted.
I'm sorry to say, that most of the issues are market driven and would sort themselves out if left to their own devices. Unfortunately, politicians (and citizens alike) can't stomach further asset declines and feel it necessary to prop them up.
Nevertheless, I agree that our financial exposure is much higher than our military exposure. I hope both are under control soon.
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