Prague Twin

Sunday, March 23, 2008

Question (I've stopped numbering them)

It was about six months ago when our good friend no_slappz asked me rather pointedly what my market view was. If I recall correctly, the Dow was at about 13,000 or a little higher having come off it's peak of about 14,000. I had already said that I expected the dow to stay in the 12,000 to 14,000 range until the end of the year with high volatility (incidentally, I also predicted the Fed to stay on hold for the rest of the year and about that I was obviously dead wrong).

I told no_slappz that I would hold my market view neutral until the end of the year at which point I would change it to negative. He criticized that this was a reactive view and was not forward looking. I never did figure out what he meant by that.

What we've seen since the beginning of the year has certainly been negative. The sub-prime liabilities that we were assured would be "well contained" have begun to affect nearly every major financial institution. My theory all along has been that one can't have it both ways. On the one hand we were told that the "risk has been spread" so that no one person or institution would get hurt too bad, while on the other hand the problems associated with sub-prime mortgages were "well contained." Well, the former has turned out to be true. Everyone will feel the effects of this problem before it is over.

So here is the question: are we closer to the beginning or the end of the current problems in the credit markets? Have we nearly hit bottom, or is the worse yet to come?



  • My fear is that the slump has a way to go yet. If the sub-prime fiasco has rocked the markets the business loan defaults, which are based on the same process as mortgages, takes longer to surface.
    Indiscreet lending coupled with consumer slowdown and tightening credit will expose a mess far bigger than sub-prime.

    By Blogger Cartledge, at 10:00 PM  

  • HA! I was just reading a WaPo piece that asked the same question:
    Nearly 90 percent of chief financial officers of global public companies don't see an economic recovery coming until 2009, according to a new survey by Duke University and CFO Magazine.

    And that's more than just crystal-ball gazing: If companies see a sluggish recovery, they won't be taking any steps to build their payrolls soon and will remain cautious in how they allocate capital.

    By Blogger Unknown, at 12:03 PM  

  • Closer to bottom. 10K appears to be the new floor. This is absent a huge terrorist event in America, of course.

    By Blogger Roger Fraley, at 5:00 PM  

  • Ah, funny how political leanings alter perceptions. Just one question: Roger, if 10K is the bottom, and 14K was the top and we are at 12.5K now, how do you figure we are closer to the bottom?

    By Blogger Praguetwin, at 11:11 PM  

  • Not the absolute bottom, the bottom of the recent (and current)correction. Like all predictions, it's just a glorified guess.

    By Blogger Roger Fraley, at 6:32 PM  

  • I'm thinking we havn't seen nothing yet. It will get worse.

    God Bless America, God Save The Republic.

    By Blogger David Schantz, at 4:15 AM  

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