Alex Trias

The New Normal

Thanks for the link to the Reuters article, which very much supports the exact point I am trying to make - the pricing of CDS can be appropriately explained not in terms of a company's ability to avoid defaulting on it's debt, but rather, as a function of arbitrage opportunities that would otherwise result if the CDS were priced lower. In case it was not clear, I used a hypothetical scenario as the basis for this article for that reason.

Thanks for taking the time to comment and for pointing me towards the reuters' article.


On Mar 15 06:46 PM shorty735261 wrote:

> Your whole article is based on a false premise, and is wrong. Credit
> default swaps on GE are 8x more expensive than your example shows.
> I.e., they are priced correctly and there is no opportunity for arbitrage
> vs. Treasuries.
>
> www.reuters.com/articl...

The New Normal

I'm assuming a hold to maturity scenario, although I should have made that assumption more explicit in the article. And the arbitrage I refer to in the hypothetical is the hypothetical investor gets a lower yeild on an investment in a "risk free" US Treasury than he gets on an investment in a GE bond + a CDS. My point is that since both investments are equal in terms of default risk, both should have the same yeild to maturity, and if they don't, the investor can gets what I call a risk-free arbitrage by investing in the GE bond + CDS.

What I wanted to write about more specifically, which may go to your point if I understand where you're going when you ask "where's the arbitrage" is this. If I see two investments with identical default risk, but one has a high yeild, and the other has a low yeild, what I can do from an arbitrage standpoint is to buy the cheap risk (the one with the higher yeild) and simultaneously sell the expensive risk (the one with the low yeild. Using the hypothetical investments in the example I gave, I suppose you could give a simplified example where the investor sells a bunch of US Treasuries short, and then takes the sales proceeds and invests in GE bonds and a CDS insuring GE debt.

As you know, there are some real practical constraints with that specific trade, which is why I left out any discussion of it.

Does that answer your question? If not, please let me know and I'll see if I can't flush this out a bit more.

Thanks for taking the time to read and comment on the article.

- Alex

On Mar 15 08:06 AM morph366 wrote:

> I don't quite follow the alleged arbitrage opportunity you have cited
> in your illustration.
> Buying a CDS would protect you from default on the GE Bonds (perhaps
> even on a Treasury issue if you so desired - although that raises
> other issues). But what it won't protect you against is a decline
> in the price of the GE bond i.e. when you want to sell it in the
> secondary market prior to maturity. The reason why the yields on
> bonds of non-sovereign issuers like GE may keep going up is because
> traders in the secondary market may still want to see lower prices
> on these instruments. This has to do with perceptions of credit quality,
> market risk etc.
> You would need more than a CDS to hedge that risk - so where does
> the arbitrage opportunity arise?

GE Capital's (GE) credit default swaps haven't moved from distressed territory even though, as one portfolio manager says, "a one-notch cut with a stable outlook going forward is about the best possible outcome."

The credit default spreads do not have anything to do with GE creditworthiness. If I buy GE bonds for their hefty yeild, I will buy some CDS to hedge my position. The more attractive the GE bonds appear from a yeild to maturity standpoint, the more I want to buy, and the larger my stake in GE debt, the more I am willing to pay for CDS insurance. Ironically, high CDS spreads are becoming common for companies with attractive debt for this reason. Add to this the fact that traders can make money betting on CDS spreads going up - there is lots of momentum to play with. Once that momentum peters out, the CDS spreads may fall - but perhaps not by too much. Remember, as long as GE bonds have a good yeild to maturity, and GE is a low credit risk, hedge funds are happy to pay top dollar to hold CDS insurance.

Rally Stats Indicate It May Not Be Sustainable

Very helpfull article. I would only add that we had what traders call a "key reversal" day, having opened down, initially, and finished considerably higher. Also, today's breadth was stunning - nearly ten advancing stocks for every declining stock on the big board. Finally, the volume of rising stocks swamped the volume of declining stocks. All augurs well for a near term rally.
We may also get a view of the potential longevity of this rally by watching the VIX. The 50 day exponential moving average on the VIX is approaching the 200 day EMA, and if it drops below, we could expect the VIX to drop significantly. If so, that would support the likelihood of longer term rally.
Overall, though, these technical signs are of import mainly to traders. A lasting bull market will not be driven by traders alone, but actual investors. My best guess is that if we see signs of a stable credit market - falling LIBOR, falling TED OID spreads, increased bank profits, fewer write downs, maybe some write ups of mortgage assets - that would seem like a necessary ingredient to pull cash off the sidelines and back into risky assets. Recent news regarding mark-to-market accounting changes and bank profits is encouraging, but there's not enough there to draw any conclusion that the worst of the credit crisis is now behind us. And until that conclusion seems more justified, traders, rather than investors, will determine the long term direction of the equities markets.

How About Adjustable Principal Mortgages Instead?

You are onto something. I like this idea. Actually, you are onto something huge.

So, what are you doing to push this? Are you publishing? Sending proposals out? Whatever you are doing, you have a great idea, very simple, and expedient in terms of both moral hazard and in terms of shoring up asset quality as a means to get capital flowing again. With an idea this good, you really have to push it. If I can help you, send me an e-mail.


On Mar 08 11:32 AM User 366653 wrote:

> I still like my idea better. Here it is again.
>
> Like the author, I have sent this idea to everyone I can think of.
> Unlike the author, I have gotten no response.
>
> Here is my plan to help solve the bank crisis. It would apply to
> the nineteen largest banks, and would work as follows:
> The government would insure each bank's entire existing portfolio
> at the current value, subject to all applicable regulations and FASB
> valuation methodologies in force prior to adoption of FASB 157. New
> loans and investments would be subject to the same regulations, but
> wouldn't be insured by the government.
> As a down payment for this insurance, the bank would issue non voting
> common shares to the government representing twenty-five percent
> of the bank's common equity. For each year that the insurance remains
> in force, the bank would issue preferred stock representing an additional
> three percent of base level equity value to the government, for up
> to ten years.
> The bank would have the right to cancel the insurance at any time
> after three years.
> The advantages of this strategy are:
> Virtually no up-front costs to the taxpayer. In fact, the taxpayer
> would immediately receive tens of billions in equity.
> Public confidence in the bank(s) would be fully restored immediately.
> The fear of government interference, as a result of "nationalization",
> would disappear because the government's equity stakes would be non
> voting. Confidence in the entire financial sector would most likely
> improve dramatically and immediately.
> The value of the bank's common stock would probably appreciate immediately,
> resulting in a profit to the government/taxpayer. While this plan
> would dilute the existing common, it is very clear that the prices
> of most bank stocks reflect the risk of armageddon. Fifty percent
> dilution is not a problem if your stock has gone from 50 to 1 or
> 2 or 3. If you assume that profits could return to half of "normal"
> over the next five years, the newly diluted stock has plenty of upside
> from here.
> The value of the bank's preferred stock, trust preferreds, and debt
> would immediately increase dramatically. Credit ratings would be
> restored to legitimate investment grade. This means the bank(s) would
> now be able to raise new PUBLIC and PRIVATE capital, and would not
> need additional Government funds. In fact, the bank(s) would be able
> to use the proceeds of new preferred stock to repay TARP ahead of
> schedule.
> Furthermore, as compared to the plans already in place, and those
> being considered, the advantage of my idea is that virtually all
> the costs are POTENTIAL, and DEFERRED, rather than DEFINITE, and
> IMMEDIATE.
> Additionally, it is likely that gains in the bank's share prices
> would offset a significant portion of any losses that may accrue
> from the insured portfolio(s). Since implementation of this plan
> would certainly hasten the recovery of our national economy, the
> assests insured by the government would be more likely to improve
> in value than to decline any further. In any event, the government
> will be in a better position to absorb losses, since the TARP money
> will have been returned, and no additional TARP funds would have
> been dispursed.
> To summarize, my plan would "nationalize" the current loans of the
> banks, while leaving the banks intact, with no additional up front
> costs to the taxpayer. The "moral hazard" issue - helping the "shareholder"
> at the expense of the "taxpayer", is handled by making the taxpayer
> a shareholder. Confidence in the security of our financial system
> would be restored, and we could get on with trying to solve some
> of our other problems.
>
>
>

How About Adjustable Principal Mortgages Instead?

Thanks, Prudentinvestor. There is much more to your comment than appears on the surface. I take from it two deep questions. First, who pays for the loss? I am assuming (and this is a HUGE assumption on my part) that if the Treasury were to sell 30 year (or 20 year, or some other long time frame) put options on a Case Shiller Index, there would be no loss. My assumption is either (1) real estate prices increase over the 30 year period; (2) even if real estate prices fell over 30 years, the premiums paid to Treasury would adequately compensate for this risk, and Treasury could reinvest those premiums in sufficiently high-yeilding assets to pay for the losses on the put options once they expire. And yes, I am assuming European style options, which I did not make explicit in my article. So the short answer to your excellent point is "I am assuming no losses".
We all know where it ends, when someone says "I am assuming no losses". But that is the big assumption behind this short article, and you do an excellent job pointing it out.
If I had more space to write, I would have expanded the article to address your second point: who pays for the loss IF there is one (and when is there never a loss?)
The answer is: the US taxpayer. The basic concept here is to subsidize downside risk at the expense of society. This runs exactly COUNTER to how an efficient capital market is supposed to work (punish and reward risk takers), because what I am suggesting is to give the risk taker the upside, and give the US taxpayer the downside. Doesn't this lead to a risk of over-investment (ie., another even larger asset bubble?)
Answer: yes.
Question: Why is Alex suggesting we even consider this proposal?
Answer: to get people to take risk again.
See, the real issue that I am seeing is that nobody will take risk at the moment. The capital markets cannot function unless people are willing to buy risk, and right now, that willingness is falling apart. What I am suggesting is to really offer an "unfair" good deal for homeowners and banks, give them all this upside and give the downside to the US taxpayer, as a means to get risk appetite up again. And once banks are back into the business of taking risk, and people are willing to put some capital into real estate (or other risky assets) again, you pull the plug on my "adjustable principal" program. Get the US Treasury completely out of the business.
My reasoning boils down to just this. I was walking to my office this morning, and went past a Starbucks. They were handing out free coffee on the street. So, I took a free cup, drank it, and went in later this morning to buy another cup. I'm suggesting Treasury basically offer the markets a free cup of coffee to get investors back in.
End of society? Maybe. We're already down that path. We'll get real close to the edge by the time this is all done.



On Mar 08 10:39 AM prudentinvestor wrote:

> Your idea appears to be an extension of the the cramdown laws just
> passed by congress, except that you would dispense with the formalities
> of a bankruptcy court ordering the principal write-down.
>
> The same vexing question comes up, who is supposed to pay for the
> loss? By custom, in orderly civilised society, profits are retained
> (after tax) by those who generate them, and losses are borne by those
> who incur them.
>
> These notions lead one to wonder whether civilised society, based
> on a sound and fair legal foundation of contract law, may be getting
> closer to its end. This would be too high a price to pay for temporary
> expediency.

Eight Reasons Bank of America Is Going to $20

When pigs fly. Listen, I just wrote an article suggesting potential for a nasty situation for short sellers, and mentioned B of A as a possible candidate for a bank with some upside to it. But the problem is that the United States is perfectly willing to step in an partially nationalize BAC, as they did with C and AIG. And today's stock market should tell you what happens over the short and near term when the US steps in as a big co-investor. It's ugly. The USA will buy up a bank or an insurance company ONLY because they know the magnitude of future losses is so severe, the government needs to put the company on the US balance sheet to avert bankruptcy and a collapse of the financial system. In other words, when the Treasury invests, it is not because they are bullish on the company. And they know more than we do.

The scenario with BAC can play in several ways. If it gets partially nationalized, kiss that baby goodbye. We see a share price around 40 cents within a few months. Or, if BAC survives, starts to write down some debts, make 'em easier to repay, enhance the credit quality of those smaller loans, take some tax deductions, you know, in time, BAC can go somewhere, rebuild some business, eat some of Citibank's lunch. Back up to $20? Maybe in ten or twenty years - again, assuming the happy scenario plays out and they don't get eaten by the Feds.

The author is dangerously happy go lucky. My advice is if you can afford to take a 100% loss on something, and want some ultra big time risk on your balance sheet, buy a small amount of BAC, and add JPM, Wells Fargo to the mix too, if you want. This will be the most speculative investment you will ever make in your lifetime, and it might go well, but there is a HUGE chance you walk away with a goose egg. And you might want to add a short financials ETF to avoid the 100% goose egg scenario.

The End of the Credit Crisis

Interesting point - especially since I'm a tax lawyer. Discharge of Indebtedness income (which is what you're talking about) will hose this Homeowner. This is one reason I've been writing to Treasury on an almost monthly basis, suggesting a five year "patch" for suspend income tax on unemployment benefits and D.O.D. income.

Look, our tax code wasn't designed for today's realities. Period. Get on board and write to your Congress person about cleaning up the system. I am.

On Feb 27 10:17 AM User 365522 wrote:

> The author fails to account for the tax effect on the borrower. The
> $200,000 write down by the bank is considered taxable income to the
> borrower, payable immediately. That will put the borrower into the
> highest tax bracket (which is going up even further). The tax owed
> will be about $80,000. Where does the borrower get that money? The
> bank survives, it stock price soars, while the borrower gets hit
> with a tax bill he can't hope to pay (or discharge through bankruptcy).
> Great plan!

The End of the Credit Crisis

THanks for your comment. That's correct. I'm using a story about individual loans for simplicity's sake only - what I'm focused on are mortgage pools and securitized vehicles, and the mark-to-market accounting rules. In an earlier draft, I bundled Homeowner together with some others, and did a securitization section. But the article ended up being too long and convoluted.


On Feb 27 11:00 AM User 75493 wrote:

> You miss one thing - individual (nonsecuritized) loans aren't written
> down until they distressed - usually 90 days deliquent. This loan
> is still on the books at 500k until the homeowner misses payments
> or the bank is sure the borrower isn't going to pay it back.
> Therefore, there's no "writeup" ahead, only writedowns for the bank
> in your story. And if the "smart guys" get their cramdown wishes,
> you'll see a reduction in lending as bank equity takes a hit. <br/>That's
> one reason why the gov't is going to be putting so much more equity
> into the banking system - there's a lot of impairment to be realized
> in the near future

The End of the Credit Crisis

Yes, this morning was an interesting development - too bad I wrote the article yesterday! If we take the Citibank move as a template for further partial nationalizations (which is what I think we'll see), then the Volkswagon story will not play out here.

Thanks for your comment.


On Feb 27 09:38 AM J. D. Swampfox wrote:

> The shares in the banks that the government owns are newly issued
> shares, not purchased from the existing supply in the market. Further,
> IF the banks take "write-ups" from the scenario you lay out, the
> value of them to existing private shareholders will have been diluted
> by the percentage controlled by the government. In the case of Citi,
> as of today, this is currently about 40%, but it looks increasingly
> like it will soon be 80% a la RBC in the UK. Skyrocket from write-ups?
> Sounds tenuous, at best...

S&P 500 Earnings: 'The Pain of Mean Reversion'

Very useful article, although I'm not sure your conclusions follow from the evidence you cite. Looking strictly at the law of averages (and you shouldn't), you'd conclude earnings growth would rebound quite a bit faster than four or eight years from now.

Also, and not to quibble, but PE ratios can be very much higher than average at the end of a bear market - as we saw in 2003. Demand for stock (which is all that a PE ratio measures) is driven by human emotion, available alternative assets producing relatively favorable returns, and does not correspond to any statistical laws I am aware of.

The case for a long flat market is certainly there, but I'd cite historical evidence - like the period following the last secular bull market that ended in 1965. A 15 year flat stretch followed, which seems to be roughly the case you're outlining. The 1970s would be a great area for you to cite in your article. On the other hand, I would also look closely at the crash of 1929 and the period in throughout most of the 1930s, which was not characterized by a protracted flatline market, but a stunning "V" shaped decline followed by the largest secular bull market in history - which really got cooking as the nation plunged into a seemingly bottomless depression.

There is a good case to be made that the globe will experience something like the Great Depression this time around, as well. If so, and if past experience is any history, equities markets may rally by hundreds of percents throughout the downturn.

Problem is, if that's the correct historical scenario, we won's see that bull market until the Dow Jones hits 1,500 or 2,000, which would happen sometime in 2011.

The problem with history is that it's not consistent, and as Yogi Berra said, the future is always changing.

My solution: invest according to the human condition, rather than the law of averages.

21 Reasons to Be Bullish

Years ago, when the Dow tipped down to the levels it is now at, it launched a massive and multi-year rally. So, a failure to rally off these support levels suggests they are, in fact, not support. And if these levels are not support, then it stands to reason they are perhaps resistance, in which case, the markets will fall further - probably by a very considerable amount, and then rebound towards 7,500 before selling off again, reaching lows that are difficult to forecast at this time - although I'd toss Dow 3,000 out there as a reference point.

And we have not rallied off 7,500. Instead, we've broken through this area with relative ease, and established that it is not the technical support area it once was back at the bottom of the last great bear market. If it is not support, it is resistance, and that implies another massive leg lower in the broad equities markets.

A trader would conclude that the US equities markets are likely to crash here, and will position himself accordingly. If enough traders think along the lines I describe, we could test 3,000 or so as the next support area for the Dow Jones.

Or perhaps traders will place their bets on a new leg lower, and get completely blown out of the water. That happens eventually, and when it does, traders with any money left change camps and start betting long, which raises equity prices and which inspires long term investors such as yourself to bring more capital into the market. Those are the moments where bull markets are born, but there is no way to tell whether we are at such a moment or not because we don't have a time machine.

Don't let the metrics you cite in your article fool you. Changes in trends are, by definition, unpredictable. And evidence is always ambiguous - trust me, I'm a lawyer. For instance, a falling VIX may not be so much an indication that the market doesn't expect volatility, so much as an indication of growing investor apathy and despair.

I know, apathy and despair give birth to bull markets. Which is fine if you think like an investor playing by yesterday's rules. Traders, though, normally don't give a hoot about these rules. They like technical analysis, and technically speaking, we're poised for collapse along the lines of what we saw last October.

There is only one good justification for owning equities now, and that is you are not smarter than the market, and don't know more than the market does. Without an edge on the market, you'd be a fool to try and time it. And if you can't time it, you hold a percentage of your portfolio in equities based on how old you are, and keep the rest in other asset categories.

What if you get burned? Answer: sometimes you will. Accept the possibility of bankruptcy, just as you accept the possibility that you'll get hit by a bus.

Can you avoid getting burned? Answer: nope.

What about by holding cash? Answer: nope. Lost opportunities for gain are the economic equivalent of any other form of realized loss - it's only human psychology that makes us feel otherwise.

Can you use technical analysis to time in and out? Answer: maybe, but since trends eventually change, you're just as apt to get burned if you short stocks as you are by taking long positions. Were the truth otherwise, other traders would have arbitraged whatever percieved edge you've got on predicting the future out of the marketplace already.

Here's the bottom line: if you're like me, you invest in equities not because you're bullish or bearish, but because you are willing to be rational about the human condition.

Odds on a Two-Year Recession and a Three-Year Bear

A very important point. It does seem like a paradigm shift is starting to unfold. During times of great market stress, it generally does feel that the very fabric of the past is being reinvented. As an investor, looking back at previous moments in history for paradigm shifts, rather than past economic cycles, may be worthwhile indeed. Whether this analysis changes your investment approach, however, is an open question for at least two reasons: (1) the market is smarter than any one of us, and prices risks better, and (2) when the very architecture of society gets knocked down (in our case, leverage, wealth through asset-ownership as opposed to work, and consumption funded by borrowed capital), nobody without a time machine can really say how or when society will rebuild. Predicting how asset prices will react to a change in social order only complicates the task.

All that said, it's a thrilling task, so here's my take for what it is worth. We are looking, possibly, at something unfolding around the world that is without precedent, but shares some of the economic and financial flavor of post World War 1 Europe and Northern Africa, or America following the banking crisis of the late 1800s, and the Asian and Latin American currency/ debt debacles of the 1980s and 1990s. During these periods, we saw entire countries (even really big ones, like the Ottoman Empire) and political/ economic structures fall apart and get rebuilt again. In each case, asset prices in debt, real estate and equities markets suffered during the "upheaval" stage as markets repriced risk and discounted a greater level of uncertainty about the future. After the upheaval stage, markets in many asset categories improved dramatically, generally reaching new highs - particularly in the case of equities in firms that adapted to the change quickly and gained "first mover" advantages vis-a-vis the newly created opportunities.

To be sure, country-specific markets for assets can, and have been permanently wiped out, during and following periods of social change (think post Tsarist Russia, or the Japanese equities markets following the 1980s debt/ real estate bubble epoch). However, given that country-specific risks can be diversified away cheaply and with ease, that ought not concern an investor. Indeed, I doubt the marketplace would compensate an investor for assuming firm, industry, country or region-specific risk at this point and if not, these risks are of none of our concern unless we happen to be in the business of arbitraging such things.

Overall, I agree with this comment insofar as it questions the key assumptions of this article - ie., it isn't different this time around, and we're going back to the same old same old when the cycle turns. Where I may part company with the author of this comment is the practical upshot of what an investor ought to DO in the face of this very real possibility that in fact, we are at one of those once every century junctures where it ACTUALLY IS different this time. My view, in case it is unclear, is this: not much - that is, assuming you're globally diversified and own several types of asset categories. By the same token, I wouldn't bother trying to figure out when the Global Dow Jones will recover, either. For those who have more than a couple of years to invest, why would we even care how things shake out in the US this year? But for intellectual curiosity, we shouldn't.


On Feb 18 12:22 PM prudentinvestor wrote:

> This is not a recession, it is a global paradigm shift, economically,
> politically, and morally.
>
> Economically, it is the US &amp; Europe returning to a labor-based
> rather than an asset based economic paradigm, in which people live
> within their means. Politically, it is about a resumption of the
> long-term socialist trend that was interrupted ca 1980 by Thatcher
> &amp; Reagan. Morally, it is about the end of an era in which mindless,
> wasteful hyper-consumption, which contributes little to its perpetrators'
> well-being, is glorified.
>
> How all this affects markets and investments is yet to be discovered,
> but I doubt that the normal recession-recovery cycle of recent times
> is being replicated.

Buying in a Time of Pessimism

The main point, I take it, is that by the standards of a "normal" market, stock is cheap and investors should buy it. But this is not a "normal" market because we are likely at a new stage in history. There may well be a structural change in the capital markets of a fundamental nature, and we may well be at the front end of the first global Great Depression, on a far larger scale than what was seen in the 1930s.

All true. The question is whether the market has priced this risk correctly, or whether any of us is smart enough to outguess the market? If you don't think you are smarter than the market, now is a great time to invest in stuff like DIA, SPY, EFA - provided you can afford to (meaning, you can hold on to your investments for years and years to come, and you don't need the money you invest for stuff like food). If you are too dumb to outguess the market, you put whatever percentage of your portfolio into stock makes sense given your age. I like the Charles Schwab model: if you are 40 years old, 60% goes into equity, if you are 60 years old, 40% into equity. Done.

But maybe you think you are smarter than the market. If so, here's how to gamble on whether the world succumbs to an economic and financial collapse that will make 2008 look pretty. I think there is a low probability that I can outguess the market - maybe 20%. The remaining 80% of my portfolio goes into stocks and bonds - for my age, about 50% global and domestic equities, 50% into global private and public debt.

So, I am willing to invest 20% of my portfolio in my own hunches about how things will play out in the capital markets over the next five years or so - about as long as I think I could possibly outguess the market. I think that maybe, there is a 50% chance that the world heads into an historic depression, and that the market has not priced this risk in at all. So, of this 20% of my portfolio that I'm willing to gamble with, half goes into global and domestic stocks and bonds, and half goes....

hmmmm. where. Let me think. Short ETFs? Well, if the bottom drops out, the sponsors of these things will collaps, as will the exchanges upon which they trade, so they will be worthless. Gold and other commodities ETFs? Same problem. This is getting tricky. What about hard bullion? Well, you can't eat it, and if the system really fails, food will be the only thing of any value. So, maybe 10% of my portfolio into cans of food? Well, problem there is practical - I don't have room, and also, my neighbors will shoot me and take my food if they are hungry enough. So that doesn't work either. What about plain old cash? Well, the question there is what will the paper be worth?

The way I see it, if the system really crashes, there's nowhere to hide. So, since everything will be worth a lot less, I figure I might as well own companies that build stuff and own things like farms and forrests. Sure, the stock might be worth a heck of a lot less than it is now, but it will be worth something, whereas many assets won't be worth spit. In fact, I do own some companies that build farm equipment, water transportation and filtration devices, firearms and alternative energy producing devices, software and equipment.

My conclusion is this. I don't know what will happen in the future, and I am not so sure that I can price it better than the market. It is not my job to generate returns, thank goodness, or preserve capital, or really to reach any particular result. That's not a job I want because most people who view their investment job in those terms fail. A better job, I think, as an investor is to come up with a rational strategy based on the risk you can't outguess the market when it comes to predicting the future, or picking assets and companies that will outperform (or, I hate to say it, even survive) in the future. And then you just need to hold your nose and implement the strategy against all your instincts and common sense.

Market Base: Not Necessarily Bullish

I am struck by the fact that few articles I read these days discuss valuation as any sort of relevant investment metric. Earnings growth, book value - it seems almost childish to consider those factors. Granted, value and growth investors have been burned worse than any time since 1975, so they look dumb, whereas technical analysis types seem to be generating the best performance. Enough so that both my neighbors (one's a retired lawyer, the other is an out-of-work business manager) are subscribing to investment news letters that follow technical stock trends. So I have to wonder, how much longer will chart pattern-based investing continue to work? Another year? Less? I don't know, and nobody else does either. But I do know that consensus investment approaches tend to die nasty deaths eventually.