July 07, 2008

Well, That Wasn't a Fun Day

I KNEW IT WAS too good to last: Asia had a nice day, then Europe had a great day, and then the U.S. markets blew it again after a nice open. Shit. In a few hours, I will have the pleasant experience of seeing how much money I lost -- again -- when my financial software does its automatic update and crunches the numbers accordingly.

But since I'm in this for the long haul, I don't really mind losing my paper dollars for the moment. One of the good things about this down market -- and yes, there are good things -- is that it presents plenty of opportunities. Stocks that one wouldn't have purchased when the market was churning with froth now look more reasonably-priced, and in some cases they are downright cheap. Plus, the medium-term economics don't look all that bad, at least I don't think they do:

* Resets on adjustable sub-prime mortgages have peaked, meaning the toxicity in the system will weaken. Since sub-prime mortages have all but disappeared, the wave of resets will eventually peter out and end in 2010 or 2011.

* Oil prices will eventually fall. The volatility in the oil markets -- best evidenced by that $11 uptick in one bloody day a while back -- is prima facie evidence speculation in the market is a powerful force. The Government, being the Government, is always slow to respond to events but it seems likely it will intervene in the markets due to public outrage. This will likely mean an increase in margin requirements and a requirement contract buyers will have to take physical delivery of the oil they want, pushing many speculators out of the market.

* The Fed will likely boost interest rates as concerns over inflation mount. Normally, this would not be good for the economy but a moderate boost would have one big benefit to the average citizen: namely, a stronger dollar, which will push down oil prices.

* When oil prices start moderating, the ECB will have one less reason to keep interest rates high, meaning they may well consider lowering rates to alleviate pressures on the European economy. This will further pressure oil prices.

* Marking to market swings both ways -- it has generated huge losses for many companies, but it also has the potential to create gains.

The long and short of all this is that opportunities exist in the markets right now. You'll have to search for them, and at this point keeping an eye on opportunities might not be a bad idea as opposed to buying -- you don't want to jump into the pool until you're good and ready. But start a watch list and save your capital so you can strike when the iron is hot.

DISCLAIMER: I am not a financial analyst, a stockbroker or involved in any other profession that involves advising people what to do with their money. As such, you should always check with someone who does one of those things for a living before investing, an activity in which it is very possible to lose your shirt. Remember, the market has the power to remain irrational longer than you have the ability to remain solvent. Always do your homework and read a prospectus before investing or sending money. Caveat emptor.

Posted by Benjamin Kepple at July 7, 2008 06:31 PM | TrackBack
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