Ask the Advisor – 12/4/2007
Here’s the latest info from Hoboken411’s Financial Advisor. Feel free to comment for to continue discussion on today’s article..
2008: What To Expect
In response to overwhelming popularity this time of year and especially this year, here are our initial thoughts on what to expect in the coming months.
Financial crises often have been marked by false dawns and punishing rude awakenings. So, is the stock market now taking a turn toward recovery or is it repeating history?
Hints to keep on your market and portfolio radar now:
Investors rushing into beaten-down financial stocks should be wary of being sucker-punched by fresh write-downs, says Bob Bruner, dean of University of Virginia’s Darden School of Business and co-author of “The Panic of 1907: Lessons Learned from the Market’s Perfect Storm.”
A financial crisis is a discovery process in which the depth of everyone’s exposure to market risk is bared. He estimates that process takes one to two years, on average, and he figures the current unveiling began this June.
Japan’s banks took the better part of the 1990s to dump all of their trash, for instance. Even relatively small financial prat-falls take awhile to unfold.
Read the rest of her 2008 outlook after the break!
Cheap Does Not Mean Value
Financial crises inevitably claims victims, and this one has been no different. More than 150 mortgage lenders have filed for bankruptcy, closed their doors or surrendered to an acquirer. Some banking titans have purged their leaders.
Such carnage is manna from heaven for some investors. Distressed-asset investor Marty Whitman, chairman for Third Avenue Funds, has repeatedly cashed in on crises. He has recently invested more than $1 billion in companies in financial distress – including mortgage and bond insurers.
In the current crisis there are more available buyers than ever, including massive sovereign-wealth funds in the Middle East, investors that specialize in betting on companies in distress and private-equity stock piles. They are starting to jump in, but not everything these so-called vulture investors buy will pay off. Be cautious.
If you think it is time to start bottom fishing, be prepared to ride it to deeper bottoms.
Watch Lawmakers & Enforcers for Opportunities & Bottoms
The worst crises have brought about regulatory changes. The popping of the dot-com bubble and subsequent corporate scandals led to the Sarbanes-Oxley law that re-wrote corporate-governance over-sight.
With the latest crisis occurring in the middle of a heated presidential campaign, the urge to regulate the problem with be irresistible. Already Treasury Secretary Henry Paulson is pushing for a plan to freeze interest rates on loans and lawmakers have their own growing wish lists.
New regulations are often unpopular on Wall Street, but they can unwittingly create swinging investment playgrounds and astute money managers will be looking for ways to profit from any new laws.
Thomas Barrack, chairman of Colony Capital, reaped a fortune in the S&L crises buying low-priced debt for then employer Texas tycoon Robert Bass. He couldn’t have done it if Congress hadn’t forced the S&L industry to mark down the value of its bad assets and hadn’t created the Resolution Trust Corporate to package and sell those assets when the thrifts inevitably went under. That helped spawn the modern asset-backed securities market, which has since been a profit center for Wall Street.
Although there is little statistical basis, in the past the first big indictments have meant a bottom is very near. When Andrew Fastow, Enron Corp. former CFO was charged with fraud and conspiracy, the Nasdaq hit it’s bottom exactly one week later. It happened in the month of October, which doesn’t theoretically support growth either, typically being a weak month.
Research conducted and supported by Wall Street Journal and MSNBC for week of December 3, 2007.