Thursday, April 17, 2008



The ever insightful John Wessel, who everyone should make a habit of reading on a regular basis, makes a great point on page 2 of today’s (i.e., 4/17’s) Wall Street Journal:

“If this is truly the worst financial crisis in a generation, is it plausible that the Dow Jones Industrial Average—now down more than 11% from its October peak—has fallen as far as it is going to fall?”

This is something I have been considering for months now as I track the market averages’ percentage of decline from their 2007 highs, trying to determine whether I should abandon my bearish market stance that has served me so well, even if not so well very recently. I have come to the conclusion that one has to think that this economic slowdown is really mild in order to sound the all clear on the stock market. In other words, if this is just a minor slowdown, then, yes, the stock market fully discounted it, or over discounted it, when it reached its lows early in March.

However, as loyal readers know, I don’t think that what we are experiencing is a mild slowdown or even a shallow recession. What we are experiencing is not the “worst financial crisis in a generation,” as Mr. Wessel says, but, rather, the worst financial crisis since the late ‘70s, early ‘80s or perhaps than the ‘30s. The housing crisis (and, as loyal readers also know, I don’t use the word “crisis” at all casually, as does the press) is only one aspect of the problem we face. What we are confronting is a credit, spending, saving, capital, foreign exchange, stagflation, tectonic economic shift crisis. 11%, or even 20%, does not come close to discounting the degree of economic and financial danger we face.

Talking my position? Maybe, but considering my miniscule degree of influence, it doesn’t matter. I am happy to be long puts on the overall market, the financials, and the cars, heavily invested in TIPs, and long USO and GLD.

No comments: