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Excerpt from Baupost Group 2007 Year-End Letter, 01/24/2008, as reprinted in Value Investor Insight:

The stock market is another area where favorable tailwinds have turned into headwinds. Rather incredibly, the credit crunch, which clearly has an impact on the cost of corporate financing, the general availability of credit, and the value of companies to a leveraged buyer, did not prevent most of the broad stock market indices from rising in 2007. Neither did the skyrocketing price of a barrel of oil, which jumped almost 60% during the year. While no one can forecast the stock market, and while the weak dollar does make U.S. shares look inexpensive to foreign buyers, we would not be surprised if the incipient economic slowdown and continued credit deterioration contribute to stock market weakness as 2008 unfolds...

No one can know what the future holds, but a further revulsion against risk in all its forms would not surprise us. Higher borrowing costs, tighter lending standards, and more cautious investor behavior could further slow economic activity, with a resultant fall in securities prices. This is a scenario that we do not consider remote, one that we fear, and one that we, no matter how well positioned, will need all of our experience, resourcefulness, caution, and acumen to survive reasonably intact.

Source: Baupost Group: Slowdown and Credit Deterioration Will Add to Market Weakness