Thursday, August 02, 2007

This Rebound Can't Mask the Real Damage / Doug Kass

Looks like some people think that the worst is already over. No wonder that some of them work for CNBC ...... :-) . I´ll go with Kass.

Sieht so aus als als wenn mal wieder einige glauben es ist wieder Zeit die dips zu kaufen. Nicht verwunderlich das einige davon auf CNBC arbeiten...... :-). Ich sehe das ähnlich wie Kass

At about 5 a.m. EDT Wednesday, a well-regarded CNBC commentator suggested that, as in times past, the market has often recovered from abrupt and large down moves like we saw yesterday. (She seemed to be implicitly stating that buying the dip is a good idea.)

> especially when you hear statsictics like this from Rosenberg via Minyanville

> das gilt im besonderen wenn man Zahlen wie diese hört

  • As many feared, auto sales were horrible in July, falling 12% in figures that encompass most major auto manufacturers including Toyota (TM), which saw a 7% decline.

  • According to Merrill's David Rosenberg, other months where auto sales were down double digits include a 12% year-over-year decline in Dec. 2000; a 10.8% decline in April 1990; a 10.8%decline in July 1981; and an 11.1% decline in Dec, 1979.
  • What do all of those months have in common? According to Rosenberg they were three months or less away from the official start of an economic downturn.

> The argument from the bulls is standing on a very weak foundation when you look at this chart that shows the pecentage of the financial sector vs. the entire stock market capitalisation.

> Das Argument der Bullen für einen weiteren Anstieg in den USA steht auf extrem schwachen Fundament wenn man sich diesen Chart ansieht......

And, Tuesday, many commentators on RealMoney.com and elsewhere suggested that investors were ignoring the positive news -- citing past earnings growth, past share appreciation, etc. (basically a lot of pasts were used in this analysis) -- and were saying that the market's selloff was unjustified. The short squeeze (which quickly disappeared) in IndyMac Bancorp was even used as an example of overdone negative sentiment that could have broad and positive market implications.


I disagree on all counts.

What is the favorable news? Why should stocks have a Pavlovian move higher and reverse this morning's weakness? And what bearing does one stock (i.e., IMB) have on the whole?

thanks to Cox & Forkum

The reality is that credit markets have (predictably) seized up and the credit cycle is in the process of normalizing. I have been concerned with this since December 2006, when I penned an editorial that described the bubble in credit availability in Barron's.

For a time, there was a disconnect between widening credit spreads and stocks. No more.

Risk is being repriced, the carry trade is being dissolved, illiquid assets are being forced to mark to market, hedge funds have started to be disintermediated and we are witnessing a worldwide margin call. And the folly of partial and conformational analysis of sentiment is being uncovered.

This is all occurring in what I have described as a tightly (and levered) financial system -- and why I thought on July 23 "It´s time to panic."

thanks to the Economist

The past levering up and current panic was importantly abetted by the fund of funds industry, the dominant investor in the dominant investment class (hedge funds), which failed to analyze how and why many hedge funds reported such consistent investment returns -- especially of a collateralized debt obligation and collateralized loan obligation kind.

The greatest risk is in our financial intermediaries that drank the credit Kool-Aid served up by the mortgage brokers, the investment brokers/bankers and the Fed, which kept interest rates too low for too long.

In looking at the dominant financial companies I have often written about and in quoting the lesson taught to me by my friend, bubby and pal, former Institutional Magazine's No. 1-rated bank analyst, Mark Biderman, during adjustments in risk premiums, it is not the "apparent" level of earnings (or net interest spreads) that are important; it is credit quality that is the culprit and, at times, the system's fundamental undoing.

Does this all mean that our investment world is coming to an end?

No, it does not. We could get a rally at any time. But the experience of the last two weeks should be a lesson learned. And that lesson is that a healthy amount of skepticism should provide the backdrop to all of our investment decisions -- in good times and in bad times

Disclosure: Short homebuilder, REITs, Russell 2000, KBW Mortgage Finance Index

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