Thursday, July 26, 2007

Bear's Feast

Tune in to CNBC today and you are certain to see Marc Faber, Bill Fleckenstein, David Tice and perhaps even a reconstituted Robert Prechter detailing why this wavelet is the big wavelet. Hide the knives, lock away the barbituates and Oxycontin, and do keep away from from open windows. However sliced, it will be a feast day for bears and simple pessimists alike.

But make no mistake: this is not about an equity market bubble or overvaluation. Ceteris paribus, most equities remain fine relative value. But things are rarely the same going forward. For the past four years, they've admittedly been BETTER than almost anyone and everyone expected, except for the worriers about imbalances and reserves. Now, as I alluded to with my Gene Kelly analogy, things are getting decidedly worse in most respects, whilst markets (excepting certain fixed-income sectors) have been slow on the uptake, basking (even singing) in the errr ummm rain. Sometimes such recognition of the validity of the bear case seeps in slowly and markets erode, though others, like an epiphany are triggered by a seminal event.

The trends in the real economy that are deteriorating are not those satiated by an instant gratification, particularly at the nexus where real estate, stagflation, and credit dislocation meet. And indeed with the bell likely having been rung on real estate, private equity, leveraged speculative carry trades, and for the moment the minting of coin via securitization, those who remain long leveraged portfolios of whatever with but a veneer of capital run the real risk of Hunter-esque infamy.

With Basis Capital having called-in "The Cleaner" (right), one wonders how many and how soon others, outside the sub-prime arena might be calling in "Victor" spreads continue to widen.


Anonymous said...

Being wrong so many times does have it's rewards. It doesn't matter if you're wrong again. Having said that I'm predicting a severe correction into the fall and then a big bounce to year end.


"Cassandra" said...

Fiscal year MF tax selling in Aug & Sept and year-end perf-enhancing boost December would roughly correspond to this.

I predicted my "event" in Feb . And what I got was five more months of funny-money financed takeovers that are annoying (to say the least) for someone who trying to earn alpha from his/her short portfolio. This has/had become an endemic problem to all who sell short. A large Credit Event restoring rational pricing to credit risk (and recession) would do wonders to restore a healthy respect in markets for risk. Rant over.