The Shadow Stock Trader
Friday, October 10, 2008
By Horacio Marquez
Email – #25
** We anticipate calmer markets after the panic selling and we deploy capital
The markets are moving at lightning speed-so now is the time to be direct.
Two things are becoming clear right now:
- At this pace of liquidation, we are a couple of weeks to zero in the Dow and the S&P 500. But most companies are worth a lot more than zero, even though a few are in varying degrees of stress.
- While backstop measures have been deployed by global central banks to avoid systemic risk, the strongest firepower has yet to be deployed.
So far the Fed, the US government and other governments and central banks around the world have been employing the minimalist approach and letting the global de-leveraging take its place. Excesses that took decades to build have been wiped out in months. And valuations reflect the huge liquidation of leveraged individuals and institutions running out the door at the same time, desperately trying to raise liquidity, in blind fashion.
This is motivated by a frozen global financial system. The tools are at the disposal of global leaders, should they decide to employ them. But trust must be after having seen a US housing bubble and subprime paper work like the proverbial bull in the china shop, wrecking havoc around the globe. There is anger and finger pointing, as well as much politicking.
But I believe that there is mammoth value in the market, which is at levels comparable to the 2002-2003 recession, while at the same time corporate profits should be 30% larger than back then, even if adjusted 20% down because of recessionary expectations.
Barclays Capital just came out with a note about whether this is a once-in-a-generation buying opportunity and pointing out that the bottom could very well come within the next two to three weeks at most. They point out to P/E ratios in single digits for global stocks.
This is Our Opportunity
I have been thinking along the same lines. For people that have the liquidity, this is the opportunity you have been waiting for. For my part, unlike the general public which has been pulling money out from the markets and their retirement accounts, I will be rebalancing my allocation by increasing the equity weighting substantially.
In addition, the heavy artillery from the governments will soon be deployed, once they reached key agreements in Washington and end the bickering and finger pointing.
And we have been deploying capital here during the panic in anticipation of such firepower coming into play.
We have bought the S&P 500, and agricultural commodities, since necessarily as liquidity gets restored, investors will realize the carnage in the leveraged commodity world is over and they need to eat. A little-known fact is the very high correlation between agricultural commodities and gold. You can actually eat agricultural commodities, which is a huge advantage; their disadvantage over gold is that their supply depends on the success or failure of harvests. But both serve well in light of the longer-term liquidity increases we are going to be seeing in order to get out of the mess.
Yes, we still have to contend with the renewed danger, given the recent polls, of higher capital gains and dividend taxes. This same cause (their raising in 1986) was the catalyst of the 1987 crash. But value is value, and we cannot stand aside.
Enjoy and Profit,
Horacio Marquez
——————————————
Current Portfolio:
Name
Current Price
Comments
S&P DEP RECEIPTS (AMEX: SPY)
$88.50
Buy
Powershares DB Agriculture Fund (AMEX: DBA)
$25.00
Buy
Oil Services HOLDRs (AMEX: OIH)
$87.65
Buy
Materials Select Sector SPDR (AMEX: XLB)
$27.06
Buy
HealthShares Enabling Technologies (NYSE: HHV)
$22.33
Buy
Market Vectors Agribusiness (AMEX: MOO)
$26.36
Buy
Energy Select Sector SPDR (AMEX: XLE)
$42.50
Buy
Market Vectors Steel ETF (AMEX: SLX)
$32.30
Buy
iShares MSCI Emerging Markets Index (NYSE: EEM)
$24.55
Buy
Vanguard Financials ETF (NYSE: VFH)
$29.42
Buy
iShares MSCI Australia Index (NYSE: EWA)
$14.44
Buy
Market Watch
NASDAQ
1462.11
0.00
SP 500
778.12
0.00
DJIA
7395.70
+178.73
As Of 5:33AM 3/18/2009
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