Time to Venture Out of the Cave?

OK, if any of you can figure this out let me know. I put up a recent post that noted bankruptcies, plant closings and layoffs from some of the industrial titans of the world. At the same time, there’s an article in the WSJ that says that some pretty smart guys are starting to put money back into the energy industry, the equity markets have rallied and the credit markets are shaking about a little bit. Is it the beginning of the end, the end of the beginning or is the light at the end of the tunnel that some of these guys see a train or real sunshine? I have no clue.

According to the Wall Street Journal some guys that know the energy business have started putting down some fairly large markers on that sector. I don’t know about you, but when the folks that have dirt under their fingernails start putting their money to work, I take notice.

The equity markets are up around 20% or so from their lows and seem to be shaking off bad news. Their is a lot of money sitting around waiting for opportunity so this may be a false signal, and Lord knows a lot of that money is dumb and advised by dumber people, but still and all, it can’t all be misguided.

And as Jansen pointed out yesterday in Across the Curve, the credit markets opened with a decisive move towards risk. I tend to trust this market a bit more and think it might be telling us that we went too far in a quest for safety.

I’ll end like I started. If any of you have a clue let me know. The signals are mixed, but isn’t that an improvement? After all, all we have had for about three months are negative signals. I’m not too sure I want to venture out of the cave, but a few people seem to be, and that might be a signal I shouldn’t ignore.

Comments

[USA - R.I.P.:]

Here's a clue:

www.layoffdaily.com/

Jan 07 09:37 AM

[prudentinve...:]

Tom, my own view, for what it's worth, is that I don't believe in doom and gloom, but the stock market simply has to return to long-term trends.

Based on a dumb look at long-term charts, S&P500 would be at about 750 to return to trend. Based on a P/E of 14 with an E of 45, you get 630. Other metrics suggest similar results, i.e. that without doom & gloom, the market is way ahead of itself at this point.

As to the smart money, those with a good memory will remember that some of "the smartest guys on the planet" advised us to buy Intel at $80, CMGI at $150, not to mention Boston Chicken!

Jan 07 09:42 AM

[Carl Spackler:]

If your coming out of the cave, you better make sure you can duck back in the cave. Incredible job losses await over the next few months. In addition, job losses are muted due to the large number of salary roll backs. A huge number of firms are issuing 10% roll backs in salarys instead of job cuts. These are effectively the same as job cuts, but will not show up on the unemployment numbers. This slowdown is going to go deeper than expected - and thats hard to imagine.

Jan 07 10:08 AM

[Moon Kil Woong:]

I see a shadow and it looks like a big lying monster. I can't tell if it's Paulson, Bush Jr., or Madoff. I can run out of the cave but it is most likely night because there is no transparency. Everything remains a deep dark box with all the walls papered over with off balance sheet derivatives contracts. Until someone does something about these issues, you can trade the financial up 100% and I still won't feel very safe because their balance sheets are fictitious Base I lies.

We need accounting reform, and some form of real regulation. All which are completely lacking as we shovel trillions into the dead carcasses of devious mega-banks and financial institutions.

Every time I see Paulson I get the shivers. He's the type of guy that would steal a random kid's lollypop to feed his fat cousin.

Jan 07 12:23 PM

[The Good Ne...:]

Tom,

I agree with you that it is time to take a peek out of the cave. (If indeed you were in one). I don't know about the individual sectors, but you are right about those many big guys with dirty fingernails laying down big bets.

The biggest fish that I'm watching is Warren Buffet.
mast-economy.blogspot....

Folks can argue that he's wrong, that his bets in 1974 are nothing like his bets today. But no doubt the guy is salivating right now. Does he care that is positions are down 4-50%, not at all.

I don't have a clue either. But Buffet reads all day, has crust under his nails, and a bankroll larger than any of us can imagine.

Signals may be mixed, but I don't think it is that complicated. My bet is that the rich man gets richer.

Jan 07 01:42 PM

[Larry House:]

Hey, Tom, clues are hard to come by; why should I share them with you? You have hit on the real problem right now--no clear signals, no clear direction. Doing ANYTHING right now is a shot in the dark that may be regretted very soon. I think one can peek out of the cave, but just don't go very far very fast.

Jan 07 02:12 PM

[happysoul77777:]

Not yet. The short sellers can sell short naked for two days, and the uptick rule has not been reinstated yet.

Jan 07 04:45 PM

[Kevin Walmsley:]

Anyone who ventured out of his cave today got swallowed whole by the biggest bear seen in these parts since the 1930's.

Hope you enjoyed your January rally.

Jan 07 07:05 PM

[OnMargin:]

Doubtful things are going up and away from here, but the doom and gloom has limits. For investors (as opposed to short-term speculators) I have tried to compile a list of articles/ interviews from value investors or prominent bears....

consequencesunintended...

Reading both ends of the spectrum will hopefully allow people to form their own conclusions as opposed to relying on "experts" or the "smart money" (read: madoff)

Jan 07 11:00 PM