I have been offline for awhile. I am in Nashville for the student national chess championships with my 8 year old son. I see many are, rightfully, concerned about this unprecedented (the greatest in the history of the markets, if I am not mistaken) rally that has proven rather unprofitable for bears.
Well, keep in mind that no one is right all of the time and there is a decent chance that I may not be right this time. With that being said, I have not been materially incorrect since this asset securitization crisis started, and I don't believe that I am incorrect now. I warned the blog (through the comments section) that I was bracing for a violent bear market rally, actually on the eve before the rally. I didn't mean (or know) that it would be the most violent market rally ever, but the fundamentals and the facts remain unchanged. I consistently warn all to take profits often, while maintaining positions and to take manageable positions in sizes where you can afford it to go against you and still have staying power. I also preach the virtues of going for the medium to long term horizons versus trying to speculate on short term price movements, which literally puts you at the mercy of unpredictable market swings, versus things that are more predictable such as cash flow shortages, covenant defaults, etc.
Stock prices are again diverging, significantly, from their fundamental values. Each time that has happened in the history of the markets, they have reverted to the mean - in other words, reality strikes.
I am hurt by this extreme rally, but I was expecting and prepared for it, going into it with a 65% cash position. I have lost a couple of months profit, but am still up well over 650% for the 22 month trailing period. I feel that, if I am prepared, a significant drop is coming and will be particularly violent, as the lack of cash flows, solvency, earnings and debt servicing ability meets the shares prices of marginal companies that have doubled or better in price. There is no more likely time for this to happend than earnings season. Keep in mind that banks have it in their cards to write deceptively optimistic accounting earnings, but it is still my opinion (and obviously that of our governments), that many of them still quite insolvent.
On a separate note, the private subscription forums are open for beta use:
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Feel free to discuss whatever you want with other members of your subscription level. Please let customer relations (in the "contact us" menu at the top of the site) know of any usability issues you may have. Enjoy, and I will be back posting full strength at the end of the tournament, most likely Monday evening.
I have started updating all of my banking research to reflect the potential effects of PPIP on asset value write downs and spreads. Goldmans Sachs till be first up, and I have a reinsurer to report on as well (which has skyrocketed in price), as well as a little bit on the education sector.