Post cards from the edge of 2008

Heading into the final trading weeks of 2008, this surely is one year people are happy to kick out the door.
It has been one crazy year! The statistics are so over the top they are hard to digest. Asset prices around the world have literally lost trillions in value over the past 12 months.
Over the last 50 trading days, the average absolute daily percentage change of the S&P 500 has been an insane 3.82%! That means the S&P 500 is averaging a daily move up or down of about 4%. Sound normal to anyone? Compare this to February of last year, when the 50-day average absolute change was a barely-beating 0.33%.
See: The most volatile market ever.
Perhaps worst of all, as schizophrenic and damaging, as this corrective phase has been this year, its relative brevity to date suggests that we are still not through to the recovery just yet.
Stock market corrections: Dow since 1900
Yesterday NBER officially declared that the US entered a recession a year ago in December 2007. Unofficially they said we would be unlikely to see it end before the middle of next year. This would mark the longest recession since the Great Depression. Today as the big three US automakers re-jig their plea for a bailout, and retail store chains announce hundreds of closures, we can’t help but wonder, what next?
Roubini says he sees another 20-30% decline in stock markets before things bottom.

David Rosenberg says that housing is likely to drop a further 15-20% on top of the 22% declines so far.
What about all those government injections of “liquidity”? Oppenheimer analyst Meredith Whitney says she is more bearish today than she was when this crisis started:
“ In so far as the market has impacted on the economy, capital destruction has been so intense that multi-trillions in capital raised by institutions through both private and public capital has gone to plug holes and not to stabilize the effects of shrinking liquidity to corporations and consumers.” Meredith Whitney, Dec. 1, 2008
Richard Russell is writing again tonight about his childhood memories of the crash of 1929 and the Depression. He’s hoping we are not headed into such tough times again.
The truth is no one can tell for sure where we are headed next. In the long-term we will get through this. In the short-term we are in relatively uncharted waters. All we can do is watch and wade along; remain defensive, careful. Be prepared for the worst while we hope for the best. Spend less, save more; protect our savings.
Yesterday was the 12th 90% down day on the US market since September. This means there continues to be enormous selling pressure to overwhelm any buyers.
Today the US market managed a rally of some volume, but in the end did not make back even half the 7.7% loss it suffered yesterday. Oil broke down to $46 and change and the Canadian market drifted lower on top of its 9.3% loss yesterday. Amazing times.
All we know for sure, is that one of these days, the sellers will finally be exhausted. One of these days, and well before this recession ends, the primary stock market trend will turn up again into the next expansion. And just as the world seems lost in despair, hope will quietly break out to the upside. We patiently, carefully watch for the turn.
Unlike most of the world, 2008 has been a very good year for my money management firm. We have made money for our clients and added significantly to our assets under management. But in many ways, money management over the past couple of years has been like working as day staff in an insane asylum. By 2006 most of the inmates went wildly manic on credit, real estate and commodities. Now the euphoria has burst into widespread anxiety and depression. I have to say that all phases have been pretty exhausting. I look forward to a period of more “normal” conditions ahead. I am particularly looking forward to the Christmas break this year, when markets and malls will be finally closed for the holidays and we can toast things like loved ones, life and hope for 2009.

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2 Responses to Post cards from the edge of 2008

  1. Anonymous says:

    Congratulations to you and your partner on the growth of your firm this year. You both deserve everything that is coming your way.
    For those of us who do not have enough capital to become clients your blog is a source of great comfort. I, and I am sure many others appreciate your efforts.

  2. Anonymous says:

    In 2006, Roubini predicted a recession in 2007.
    No doubt, every economic forecast made in Dec. 2007 for 2008 has been proven wrong!
    Only 1 person on the Forbes list of the world's richest people made their fortune exclusevely by investing in stocks, Warren Buffet. He pays no attention to economic forecasts, or stock market predictions.
    He will buy stock in a consumer monopoly type company with a long history of growing, predictable earnings, and based on ROE over the next 10 years will determine a range for the future stock price. He will buy today at a stock price only if he can obtain at least a 15% compound growth rate. Stock prices are always low during a bear market.
    He is buying now with his own personal money. Everyone is predicting the worse for the US economy. He is not in the least concerned, knowing that in 10 years he will have a very nice return. The stock maket in just a casino in the short term, no one can predict the short term movements. A gambler occaisonally hits their number, but in the end they lose everything. Jimbo

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