cos1000

Will 2009 Bring Ring Three of the Financial Circus?

Steven,

Very well written and thought out. Thanks for laying out what most are not willing to hear.

The shutters felt in August 2007, with the financial markets ceizure of highly leveraged banks, book ended the last of hope for residential RE, and the beginning of the dommino effect. Anyone in RE could have described the end of the good days in the Summer of 2006 when qualified Buyers were few and far in between at almost any seller's asked, and needed, closing price. The.... "I will buy yours as soon as I sell mine"... , red flags in P & S agreements showed up everywhere.

The creative financial engineering that was allowed to mushroom off of these leveraged assets was the ticking bomb that no one was really aware of (except the bomb makers). The explosion has happened way off in the distance, but we haven't heard the noise yet (maybe just a rumble).

I agree with your assessment of 2009. As one poster above said with a 30 year, S&P trend line of 750, we could easily retrace to 1995-96 levels, when the real bang of what's happened is finally felt. This could easily bring us to a S&P of 580-625. I don't think we get there overnight, but by the Summer of 2009, when evidence of Commercial RE realities including Retail Mall failings, credit card defaults keeping Banks weak, and unemployment growing to 8 - 10% with more retail chain liquidations, The Consumer, representing 70% of the economy will be no where to be found.

Government stimulous will be what eventually gets us to establish our new economic reality as we claw our way back, but not before we feel the pain that is coming in 2009. Rebuilding our infrastructure, creating a realistic alternative energy manufacturing industry, that will not do more harm than good, and will include natural gas for autos and trucking, and redesigning our retail supply chain which will be primarily distribution and internet point of sale in nature, will all be some of the engines that drive the recovery, but not in time for 2009. IMHO wealth preservation is still the goal for 2009, minimizing further losses.

Last Thursday Was the Bottom - It's Time to Get Back in

Market Bottom?? The Bottom, wherever that might be this time around, keeps being put off by artificial means. The government stimulus is just an attempt to stave off a complete melt down in the world financial markets. Government debt guarantees, the printing of money, all to support derivative financial instruments that have nothing to do with the underlying economy. All of these Credit Default Obligations that are off book, will need to be brought on to these companies' books in the upcoming year. That combined with the Commercial RE market, yet to be hit with defaults and foreclosures, bringing further job losses and bankruptcies still not yet reported, makes trying to predict a bottom in the stock market foolish at best. For traders temporary tops and bottoms are opportunities to make money, but for those trying to do business in this environment the waters are still treacherous. A buy and hold attitude in this environment will just was away any wealth a long term investor might have left. Moving to insured deposits and precious metals is more appealing here, preserving capital and taking advantage of fiat currency inflation over the next 12 -18 months.

Other than bail out money from the government and the lowering of interest rates, nothing has really occurred to unwind the Residential RE market to a point of stabilization represented by flat values and moderate sales. With Commercial RE, paper is more short term and will be called in to reset over the next 12-18 months, with much tighter requirements. Foreclosures and bankruptcies in this sector will cause a new round of heartaches. With store closings(HD), and retail bankruptcies (Circuit City), not only Mall, but Office Building occupancy and revenues will be under pressure.

I just can't see anyone calling a bottom after an 18% run, given all that is known and unknown about this historic economic event yet. I cannot trust the leadership that sat by watching all this develop, be the same experts that now will tell us that it is all OK now. I don't fault the author for being hopeful, but looking at the charts will show that we just came off a lower bottom and haven't even broke through the 13DMA yet to establish a higher top. My take is that we will not.