A 'Must Read' Article
The Bespoke Investment Group under their B.I.G. Tips column had a brilliant article out today.
Here's is their text. Please be sure to read all the way through.
A Review of the Headlines:
A recent review of the daily headlines on the front page of the NY Times' business section
highlights a relatively downbeat envirornment in the market and the economy. Regarding the consumer, things remain bleak. As the headlines illustrate, Nordstrom's will be put 'to the test', 700 jobs will be cut by Saks and weak sales are causing a 78.7% decline in earnings at Ford and an idling of 16 plants at GM. In the housing sector, as real estate woes worsen, homebuilding activity has plummeted to levels which are the lowest since 1982.
In the credit markets and on Wall Street, junk bonds are at record lows as defaults keep rising. As a result capital levels at banks are at uncomfortably low levels. In an effort to cut costs banks have had to deep-six the dividends and sell off assets to spruce up their books. There has aso been a wave of layoffs among the maor brokers and Citi has had to raise capital at costly terms to win over investors.
Regarding the Fed, while they now see the potential for weakness in the economy, they were late to recognize it. In fact, in the early stages of the credit crisis, instead of responding to the weakness in the economy they put their emphasis on inflation.
However, now that the Fed has recognized the problem, many commentators believe the ailing banking system may be less able to aid in a recovery. To many, the question is not if, instead they are hoping for a 'friendly recession'. Even President Bush has commented that the "United States may be near a recession". With the Fed easing monetary policy, and the ECB maintaining its hawkish stance, markets are worried by the fall of the dollar causing commodities to rally, especially oil rising 6.6% in one day. Rising commodities have stoked inflation fears and nobody wants that blast from the past: Stagflation.
Concerning the market, Microsoft is launching a bold new game plan but the bear market is back. Will it be Gentle Ben or Real Grizzly?
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Sounds like a grim picture doesn't it? However you should know that all the headlines just quoted were from the period between September and November of 1990!!!!!
The S&P 500 bottomed at around 295 in that period before surging to over 415 in early 1992.
Moral:
Don't let the press stop you from buying when the news is bad but share prices are fabulous. In a supply and demand market you can only get the best buys when others are desperate to sell.
Source: GuruFocus
This indeed is a very good article. Thnaks for this.
Joyanta
Posted by
Joyanta |
2:20 PM