Market Student

The Devastating Week That Was

Will be interesting to hear the developments out of the government next week. There is a talk of direct investments (in the form of preferred shares most likely) from the Treasury into banks. Paulson has mentioned that it isn’t a liquidity issue as previously thought, but rather a solvency issue. The 700B would certainly go much further in supporting banks if offered as a capital injection (because of fractional reserve banking) rather than simply taking bad assets of balance sheets. How soon (of if) this will occur and its effect on short-term borrowing remains to be seen.

However, at the same time, it seems that the economic damage from this contraction of credit is serious. Talking with some companies this week, many have cut all capex and are assessing plans to cut SG&A and fixed costs. I have a feeling that consumer spending will play a large role as well, due to restrictions on consumer credit. When banks contracted credit in ’89, consumer spending fell 9% on an annual rate. My view is that we have some more downside before we hit rock-bottom valuation, especially with deflationary concerns.

I’m looking back to performance of several industrials to see how business conditions changed during the ’90 recession to have a base-case idea of what ’09 earnings could look like.

Phillip Morris: A Costless Call Option on Growth in Emerging Markets

Interesting article. How will you structure a trade according to your analysis?

Disclosure... I do own MO and PM.

Performance for Harvard, Yale Endowments in 2008

Contrarian...

A 50% YTD return is very impressive. Could you please publish your portfolio for us to view?

Options Earnings Spreadsheet: 8/6 - 8/8

Interesting article, but how may I use it?

I noted that there are many energy (oil and gas) companies listed in your table. If I have a rather positive view for deepwater drillers, for instance RIG, but not certain about the overall market direction, near- to mid-term...

What option strategy shall I use? Any help will be greatly appreciated.