August 19, 2007

Turning the Corner?

WELL, I HAD A great weekend away attending the wedding of my friends Greg & Ann. It was a wonderful ceremony, the bride looked beautiful and all went according to plan. They are now enjoying a short honeymoon out in Nevada, with a longer honeymoon to follow later this year.

The trip was especially nice considering that I got to catch up with Greg for a while -- it had been a couple of years since I had seen him, and it was great to spend time shooting the breeze prior to the ceremony. It was also nice because the ceremonies forced me to take my mind off the news in general -- to say nothing about the turmoil in the markets, which I had been following pretty closely throughout this past week. When I focus on something, I really focus, and so it was nice to take a short break.

But I'm back and it's Sunday night and the big question will be whether the U.S., and to a lesser extent the European markets, will rebound over the next couple of days. I am hopeful that if we do get a rebound, it will mean the worm will turn. It seems to me that if we get a few days on the upswing, at least some of the scoundrels now cleaning up on their short-selling will take their profits, and since that would mean they'd buy stocks, that would force the market even higher and start a virtuous cycle. Also, folks who are now sitting on the sidelines with cash might decide to plow back into the market, helping out the bulls.

And THAT, my friends, would mean more pictures like this:

BULL! ALWAYS BULL! Investor Benjamin Kepple reacts as the market finally has a good day on Friday. The rally came after several turbulent and losing days in the market, which caused Mr Kepple to gnaw off his other thumb down to the stump.

Heh. Pretty cool picture, eh? A friend of mine got a new lens for his camera; he was hoping to try it out; so he obliged my request for a couple of photos. I was quite pleased to find them waiting in my home e-mail box when I returned, and --

READER: Hey! What's that thing taped up on your desk?

What's that? Dude, there are LOTS of things taped up around my desk. That's part of how I keep organized. Plus, I have funny stuff up there. Like the e-mail I once got that advised, "Dear Ben: there are financial and emotional benefits to planning ahead for your funeral." Oh, really? Does this man know something I don't?

READER: No, no. I mean, that thing taped at the bottom of your computer monitor.

Oh, that! Well, it's just a little something I put up related to football. You know the season's coming up, and I'm really looking forward to it, since the Steelers are going to have a great year, and --

READER: Ben! If I squint I can see that it's referring to Super Bowl XLI, so that doesn't wash.

What? You can make that out? Shit!

READER: Stop stalling! Now come on! Let's see it!

All right, all right --

READER: Dude, you need help.

Yeah? Keep it up and I'll sign your melon, pal! Besides, it was the best post-Super Bowl headline I saw, and unapologetic in its seething anger, so I put that bad boy up there. Priceless.

But back to the markets. Friday's rally in the U.S. markets was nice to see. I do my best to be dispassionate about my investments but watching my hard-earned slowly evaporate day after day was particularly not fun.

For planning purposes, I track the underlying value of my investments using a not-all-that-complex formula with two components. The first component is the overall value of my portfolio minus a few percent -- it works out to a round number. I call this the Retrenchment Number. It prevents me from having to re-enter the numbers on a daily basis on my main spreadsheets, and it also ensures that no matter how the market did, the number is a somewhat-precise representation of my portfolio's value. I also have a second number, called the Baseline Number, that represents the minimum value my portfolio can reach before countermeasures are put in force. Should the value of my investments fall below the Baseline Number, I start shifting disposable income into savings.

Over the past two weeks or so, as the market fell, I adjusted the Retrenchment Number down 17 percent in an attempt to stay ahead of the carnage, and the Retrenchment Number -- formulated based on the possibility of continued whipsawing -- came perilously close to the Baseline Number. Suddenly, my steak dinners and gourmet shopping and bookstore visits were in danger. But the uptick on Friday put a halt to the slide and I must admit I'd like it were that the start of a trend.

I'm hopeful that will happen. As of 10:30 EDT, pretty much every Asian market is going gangbusters -- New Zealand is up more than 2 pc, Australia more than 3 pc, Japan more than 3 pc, and Korea, Singapore and Taiwan are all up about 4.5 pc. Even the Shanghai Composite is up -- it had been down earlier -- although it is Shanghai and it's a weird exchange.

Those numbers are obviously drawing steam from the U.S. markets' great day on Friday, but I'm hoping against hope their strength will carry over into Europe and then back into the U.S. We shall see. The European papers are screaming about continued turmoil, particularly as a major German bank admitted that it got a huge bailout due to losses on US subprime debt. (Schadenfreude. Gotta love it). Meanwhile, an important Swiss banker has gone on record saying the roller-coaster ride ain't over yet.

I still think a lot of this turmoil is panic talking. It would appear a lot of this sub-prime debt was snapped up by foreign investors, and as such I wonder how much the U.S. economy would really be damaged because some of our citizens are engaged in non-traditional ways of taking back dollars -- hopefully, petrodollars -- from abroad. However, the situation in Europe may well prove far bleaker than here -- here's a commentary on that very matter you may find interesting.

Also interesting is the theory these market troubles may force the Federal Reserve and the ECB to cut interest rates over the next several months to stave off an economic downturn. Hmmmmmm. That could make certain investments more valuable than they have been recently. We shall see. In the meantime, perhaps we should keep our seatbelts fastened.

Posted by Benjamin Kepple at August 19, 2007 10:55 PM | TrackBack
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