The Downhill Slide: And February Makes Three

Since all hell broke loose last fall, February marks the third month that everything went down. September and October 2008 were across-the-board losers, and so was last month. The only thing that gained, by a thread, was cash, based on 3-month T-bills, as our chart below shows.

The deep pain now coursing through the capital and commodity markets needs no explanation at this point. The global recession strangling the planet inspires only selling, hoarding cash and otherwise retreating from debt in any way, shape or form possible. This is a toxic combination and one that explains the various economic ills that are likely to roll on. The unwinding is also necessary to cure the problems that afflict the global economy, but no one expects the process to be pretty or speedy.

The fact that there's no place to hide necessarily means that exposure to risk is like swimming with lead balloons. The only question is when we'll touch bottom. Alas, this observer expects that the negative surprises still have legs, economically and financially. The economic and financial indicators that comprise our routine data analysis offer little in the way of hope for an imminent reprieve. It'll take more time and fresh numbers in the coming weeks and months to even make a determination of whether the end of this year will be a floor on the pain, or just another signpost for additional trouble in 2010.

In the meantime, the trend is down. That said, the middling performance of our Global Market Portfolio Index (GMPI), while nothing to celebrate, is more or less what you'd expect from the true market benchmark. Second-guessing the market is never easy, and it's getting harder by the day. Fear and emotion will take a hefty toll on mere mortals as they try to sidestep the ongoing pain while trying to position portfolios for the inevitable rebound. Mr. Market tends to get this balancing act right more often than not.

Looking ahead, it's likely that the markets will begin a bottoming process well ahead of the economy. Picking troughs, of course, is still a dangerous game and then some in this climate. Yet some of the future is clear, or so your humbled author thinks.

Consider that bonds have generally held up in the crisis, particularly government bonds. That's no surprise, since the flight to safety usually means running to those institutions that can print their own money. The flip side is that risk has been hit over the head with a shovel, and it continues to take a beating. Something that approximates the opposite scenario is coming: Risky asset prices will rise and safety will suffer. Timing, unfortunately, is unknown, and therein lies the primary hazard in money management going forward.

The only thing we can say for sure is that future rebound is closer now than it was six months ago. (Yes, we know: that observation and $2 gets you a cup of coffee.) The expectation implies that our GMPI will deliver another middling performance on the upside once the healing process begins. Let's just say that the best-laid-plans of mice and active managers are no match for the dumb wisdom of Mr. Market's passive asset allocation. Same as it always was.

Comments

[Just Say Whoa!:]

>"The deep pain now coursing through the capital and commodity markets needs no explanation at this point.

Leverage created out of thin air, out of nothing, exempted from Regulation by the Deregulation/TaxCut party, lookin' the other way..they didn't see nuthin'!

In the words of the immotral David Byrne"

"You may ask yourself
Am I right?...Am I wrong?
You may say to yourself
MY GOD!...WHAT HAVE I DONE?


Same as it ever was..."

Mar 02 11:43 AM

[Larry House:]

Some opine, and I tend to agree, that we are entering a new era, perhaps a couple of decades in length, during which paper assets--stocks AND bonds--are unpopular. And, along with that, people are just fleeing anything that represents risk. Investors are shell shocked, and when you are alone in the forest without a clue which way to go, one just hunkers down to wait. Every choice now carries risk--even cash--but the risk is less there.

Mar 02 12:29 PM

[MarvinMBA:]

Some companies have the potential to be very successfull in spite of this market downdraft. As an example:

WEST HAVEN, Conn.--(BUSINESS WIRE)--NanoViricides, Inc. (OTC BB: NNVC.OB) (the "Company"), reported today that it has signed a Material Transfer Agreement with a major pharmaceutical company (“Party”). The Agreement initially entails evaluation of one of the Company’s nanoviricide drug candidates by an independent consultant chosen by the Party. This drug candidate has been designed to eradicate viral infections of the external eye, including those caused by adenovirus and herpes virus (“HSV”). It is the understanding of the Parties that, should the testing results be favorable, they will enter into good faith negotiations for a potential long-term, exclusive, worldwide licensing agreement for the development and commercialization of the drug.

Mar 02 12:30 PM

[The Last Bo...:]

Hey,
how about gold? It looks like a winning bet in February, doesn't it?

Mar 02 12:38 PM

[plumstupid:]

Soon they be fleeing for their lives!


On Mar 02 12:29 PM Larry House wrote:

> Some opine, and I tend to agree, that we are entering a new era,
> perhaps a couple of decades in length, during which paper assets--stocks
> AND bonds--are unpopular. And, along with that, people are just
> fleeing anything that represents risk. Investors are shell shocked,
> and when you are alone in the forest without a clue which way to
> go, one just hunkers down to wait. Every choice now carries risk--even
> cash--but the risk is less there.

Mar 02 01:04 PM

[Jason Rines...:]

Yes and I am one of those believers this is an end to an era that lasted 500 years and the start of a new era. Indeed it will be messy but I am an eternal optimist of mankind. I like your comments. Thank you for wisdom-led guidance.


On Mar 02 12:29 PM Larry House wrote:

> Some opine, and I tend to agree, that we are entering a new era,
> perhaps a couple of decades in length, during which paper assets--stocks
> AND bonds--are unpopular. And, along with that, people are just fleeing
> anything that represents risk. Investors are shell shocked, and when
> you are alone in the forest without a clue which way to go, one just
> hunkers down to wait. Every choice now carries risk--even cash--but
> the risk is less there.

Mar 06 02:40 PM

[rcprofit:]

I saw that. The stock moved and came back. Do you have any idea how long the evaluation takes based historically on other Material Transfer agreements...?

*Also a sincere suggestion would be for you to write your own article about nnvc in addition to leaving it on everyone else's comments... There aren't many articles on nnvc.

I would like to find out more information on the company.

Rich



On Mar 02 12:30 PM MarvinMBA wrote:

> Some companies have the potential to be very successfull in spite
> of this market downdraft. As an example:
>
> WEST HAVEN, Conn.--(BUSINESS WIRE)--NanoViricides, Inc. (OTC BB:
> NNVC.OB) (the "Company"), reported today that it has signed a Material
> Transfer Agreement with a major pharmaceutical company (“Party”).
> The Agreement initially entails evaluation of one of the Company’s
> nanoviricide drug candidates by an independent consultant chosen
> by the Party. This drug candidate has been designed to eradicate
> viral infections of the external eye, including those caused by adenovirus
> and herpes virus (“HSV”). It is the understanding of the Parties
> that, should the testing results be favorable, they will enter into
> good faith negotiations for a potential long-term, exclusive, worldwide
> licensing agreement for the development and commercialization of
> the drug.

Mar 10 05:04 PM