A few financial comments--We ain't seen nothin' yet

3/14/07

I wrote the following note today to my brother-in-law, whom I advise on his investments, in the wake of his sending me a copy of a financial newsletter he receives. The gist of this issue of the newsletter is that the writer’s model portfolios are outperforming the market so far this year, along with a reiteration that everything is just fine and dandy. The markets will turn up again after this much needed pullback because, after all, the fundamentals are so strong. So stay close to fully invested; how can one lose in the long run? (As Lord Keynes said, “In the long run, we are all dead.” But that is yet another piece of the wisdom of our forbearers that today’s financial Harry Potters seem to have tossed aside like, well, yesterday’s newspaper.)

As you might guess, I don’t share the writer’s sanguinity. As I say in the body of this letter, wait until the market discovers (It will, of course, be shocked to learn this because “nobody” could have foreseen such a development.) that the problems in our nation’s mortgage portfolio are not limited to SUB-PRIME mortgages.

We have only begun to see the difficulties that permeate our “don’t worry, be happy” financial system.

3/14/07

Yeah, the model portfolios outperformed a lousy market, which is cold consolation. I understand relative performance; I made my living on it back when I almost was somebody and even now use it as an excuse when people with whom I work don't do as well as they expected, but it makes little sense to the average person. I had a great day yesterday, owing to my put positions, my short positions, and my TIPs positions. Making money, and not losing money, is what matters to most people.

I'll be interested to see how this guy contorts himself as the crap REALLY hits the fan with this market. Wait 'til the market finds out (I can predict what the "experts" will say: "No one could have seen this coming." Well, someone did, and now you know who.) that it is not only sub-prime mortgages that are a problem, but that the "high quality" paper isn't as high quality as the deep thinkers supposed. Meanwhile, it looks like we MIGHT get a day's reprieve today.