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Ilan Babaji
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Writer, filmmaker, soul who is travelling around the world to give peace a chance. Also, a contributor of Seeking Alpha.
  • Crisis, Changes and Opportunities 0 comments
    Feb 17, 2010 12:49 PM | about stocks: AOA, SPY, AOK, AOM, AOR

    Crisis is synonym of change, and change is synonym of opportunity.

    Recovery of the crisis – which has already passed - is on its way. And there’s still a lot to see. Enterprising is born during crisis, changes are born during crisis: when everything is comfortable nobody dares to make a move towards change and embark on new ventures. But when there’s no way out, minds are set in motion.

    Over the last few months I lived in Los Angeles, I met many quite interesting people. Some good friends of mine are loosing their house in the exclusive neighborhood of Orange County and they are moving to a smaller place, rented. In this very moment they dare to embark on new ideas and make them real, to get together and think which roads to take.

    Then I get to Argentina and I meet my family, which is going through a peculiar time of crisis-changes, of new opportunities. In these times my family thinks of alternatives to progress, they become reflective towards life and they analyze what is right and what is not, and what is best for us. The examples are abundant: great friends with brilliant ideas who are working for projects without making any profits yet, but knowing that results will be fully rewarding once everything is recovered.

    Right into the first month of the New Year the financial market started to adjust (process in which we are still immersed). The roots of such adjustment were the short-term overbuying levels. The excuse for adjusting was the news given by the Federal Reserve, planning to stop the quantitative easing program by the ends of March.

    To stop such programme means, in other words, that they are going to stop buying mortgage securities. The key issue here is that such mortgage purchases by the government help to keep the mortgage rates low.

    I still keep a bullish look towards the stock market. Correction may last a little longer, but I consider that after the cleaning of values, the market it is going to take up its positive trend of values recovery. Interest rates keep low, business profits are improving, the American GDP gave us a very positive surprise and the yield curve is still attractive.

    Besides, prices and valuations are still far from their levels from two years and a half ago. All this tells me that the market is still offering a favourable bullish space.

    It is time to validate the prices growth with the earnings growth. And this is exactly what the American companies are doing at the moment: 390 out of the 500 companies of the S&P 500 reported earnings that exceeded the best estimates. We are going on the right track.

    Thinking about the Federal Reserve, Bernanke's objective is to avoid deflation at all costs. His method is inflation. It would sound strange that he dared to raise the Fed Fund when inflation still low and the risk to throttle the market by boosting deflation is latent. The futures market is taking off a rate increase from the Fed for the American fall. This really puzzles me.

    The unemployment rate is still painful and giant, severely harming Obama’s popularity. And if that weren’t enough, elections are taking place in November and we know that politicians are not fond of giving bad news around those times. To put up rates when unemployment is so high, inflation is so poor and right before elections is not the picture I can imagine.

    What is the risk of not increasing rates and keeping or not intensifying the incentive? It is to generate one or many bubbles of assets. It gives the impression that this is where the market is heading for.

    Crisis is synonym of change, and change is synonym of opportunity. The world has lived a strong crisis; today it is in the middle of change, and opportunities are right in front of us.

    By Leandro Taub for
    Disclosure: "No positions"

    Disclosure: No Positions

    Stocks: AOA, SPY, AOK, AOM, AOR
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