Juggling Dynamite

Over the past couple of weeks I have written that we were getting close to a technical buy on some of the broad equity markets. This week we toed in our first buy tranches on the S&P and the TSX. We still have a lot of cash not yet committed. If the recent up trend of the past week continues, we will be no doubt be adding more capital in the weeks ahead. But if the trend breaks down again, we will have no hesitation to exit.
I can make an argument for why markets could rally here. I can make an argument that they may be likely to break down again in the not too distant future. I have said prices could react similar to 1973-74, when the market fell 40% to October 1973 before rallying 13% from November to February, and then breaking down to a fresh low in the fall of 1974. That produced 2 back to back annual losses of -26% for the US markets during that cyclical downturn of the secular bear that ran from 1966 to 1982.
This recession is going to last longer than most are prepared for. The economic data will undoubtedly be dark for several months to come. The stock market will work away at re-pricing as it goes. At present, I am neither a bull nor a bear. Until the trend stabilizes further, I would caution against making strong bets with capital either long or short.

America came out in record numbers last night to choose their new leader. It was a sight that inspired hope.
Whatever your politics, to see so many people from all walks of life come out to claim a stake in their own future, has to be encouraging. For at least the last 15 years, many people have blindly followed marketing and salesmanship without accepting personal responsibility for themselves and their countries. Many have allowed themselves to be blindly tossed about. Waking up now, they find that neglect has left them weakened and vulnerable on many fronts.
As a Canadian I could not help but note what great emphasis was placed on the colour of the candidates in the US election. But then, colour has always been a very defining attribute in America. I can say that it has never been a defining issue in Canadian elections. But lest that sound smug, I acknowledge that for all our melting-pot-diversity, in Canada we have never yet elected a person of colour or a woman to be our national leader.
To its credit this year, America seriously contemplated all kinds of leaders, black, white, male and female. In the end, the majority chose the person they thought most able for the enormous job at hand. Last night Americans picked their leader, not a colour or a sex.
I am reminded of so many wise and illuminating Dr. Seuss stories. The Sneetches on the beaches fought over whether those with stars on their bellies were superior to those with none. The people who liked to eat their toast butter-side up fought to the brink of nuclear extinction against those who liked their toast butter-side down.
Today, we have many serious challenges as a species. We need to evolve so much about the way we humans think and manage each other, the planet and our shared resources. Like it or not, we are all unified by our mutual dependence on air, water and energy.
Obama is a brave man. The road to recovery is more than daunting. As he said, the climb, she is steep. But for the first time in my life, people all around the world seem truly united in great hope and a heightened sense of personal responsibility for our choices. It is the choices we are making every day that are defining the people we will become.
Great work lies ahead. But we are what we believe. I believe that so long as we are prepared to work hard together, while committing to personal discipline and responsibility, we can turn this ship around.
I believe that after a period of real darkness, world sentiment may have turned and saw a glimmer of light last night. I believe that Dr. Seuss would be proud.

Some readers have expressed surprise at my endorsement of the JP Morgan plan to re-work some of their existing mortgage terms with distressed homeowners.
For the record. I am not saying anything about the government bailing out homeowners here. I am saying the parties to the contract have a reason to seek a win-win solution where possible. I am saying there was a bad contract made between many borrowers and lenders. The borrowers over-borrowed and the lenders over-lent. The banks and mortgage dealers were over-paid on the front end for business that in many cases should never have been written. Both sides were at fault. It is in the best interest of both parties to the private contract to see if they can work out a solution other than kicking the borrowers out of the home and the bank/lenders collecting empty houses they do not wish to hold and cannot sell.
John Hussman suggests the written down principle could sit as a lien on the property interest free, and the banks can re-coup the lien some day if and when the house is sold at a premium above the first mortgage. This is another way to the same end. The goal is to be creative and come up with practical solutions that are better than immediate foreclosure and lose-lose for all parties.
There will be many cases where the borrower has since lost his or her job, and so no re-work will be possible. But where you have people able and willing to salvage the contract, on necessarily revised terms, I say the parties should be encouraged to think outside the box and negotiate an agreement.
I have much more trouble with the idea that the government should bail out banks for their bad lending decisions. Banks are supposed to be experts at lending. Aren't they always telling us what experts they are! They should be expected to figure out free-market solutions to their bad business decisions.