C.M.O. 3.11.2009
Credit Market Overview
March 11, 2009
Given yesterday’s respite to the selling which had reduced the S&P from it’s 903.25 2008 year end close to 676.53 on Monday I thought I would discuss something that caught my eye in the papers recently and by papers I mean the two august publications put out by Dow Jones; The Wall Street Journal and Barron’s. Doing so before yesterday’s rally would have been a little too much like kicking a dog when it’s down and there’s no good karma coming from that.
The cover story in Barron’s this week, written by Andrew Barry, gives a litany of reason’s why calling for the Dow Jones Industrial Average to hit the 5,000 level was not something Andy and his editor thought was in the cards.
To bolster his argument Mr. Barry uses our President’s recent remark that “stocks are cheap for long term investors” as his opening salvo. He goes on to say that stocks also look cheap relative to book value, price/earnings multiples, U.S. economic output, gold, and a normal level of corporate earnings. Andrew adds that the huge amount of cash sitting on the sidelines argues well for impatient investors to release the hounds well before the big hand on the Dow clock points to 5 and the little hand points to 000.
Everyone is entitled to their opinion and a well structured argument carries its own merits. In light of this I am not going to work here dispel any of Andrew’s optimism. I would like to point out; however, that given the cover story I thought Barron’s would have peppered the paper with equally bullish articles and opinions as a show of real support.
What the paper did instead was to print excerpts of David Rosenberg’s piece “A Depression Style Jobs Report” in Alan Abelson’s column, a bearish follow up piece by Felix Zulaf on the page immediately preceding Mr. Barry’s article as well as an interview with David Levy, Chairman of the Jerome Levy Forecasting Center titled “No Doom, Just Gloom”.
Before I get into specifics of what the market practitioners had to say it should also be noted that the lead story in the Money & Investing section of Monday’s Wall Street Journal was titled: “Dow 5000? There’s a case for It”. Wouldn’t it have just been easier for Barron’s to give poor Andy a towel, point him towards the showers and say; “Not this week kid”.
Since his name came up first we’ll start with “Rosie” whose nickname inside “Mother Merrill” belies his outlook on all things economic at the moment. (Just in case the title of his piece didn’t give it away.)
With respect to the amount of space I have left I will repeat the one quote from Rosie I think reflects his sentiment. “The extensive deleveraging, as the credit excess and asset bubble of the last cycle continues to unwind, is exerting a powerful negative influence on the real economy that is far beyond our collective professional or personal experience.”
To summarize the Felix Zulaf follow up article one needs only to read the caption under the picture accompanying the article which reads: “It’s a depression environment”. To be fair, FZ said he saw a bear market rally in the offing of somewhere between 25%-40% lasting 2-4 months. Afterwards, however he predicts the S&P will bottom in 2011 with the SPX boasting a “4” out front. Felix believes that: “Policymakers and investors still don’t understand the process at work in the world economy”.
David Levy, as the title of his article reveals, doesn’t see the end of the world before us, just a million miles of swap to be slogged through. He does see some firmer footing some time in 2010.
Since we live in a democracy I think it best to count the votes and by my reckoning it looks like 1 yay and 4 nays if the vote is on whether the bottom has been reached.
Enjoy the week.
Jim Delaney
March 11, 2009
Given yesterday’s respite to the selling which had reduced the S&P from it’s 903.25 2008 year end close to 676.53 on Monday I thought I would discuss something that caught my eye in the papers recently and by papers I mean the two august publications put out by Dow Jones; The Wall Street Journal and Barron’s. Doing so before yesterday’s rally would have been a little too much like kicking a dog when it’s down and there’s no good karma coming from that.
The cover story in Barron’s this week, written by Andrew Barry, gives a litany of reason’s why calling for the Dow Jones Industrial Average to hit the 5,000 level was not something Andy and his editor thought was in the cards.
To bolster his argument Mr. Barry uses our President’s recent remark that “stocks are cheap for long term investors” as his opening salvo. He goes on to say that stocks also look cheap relative to book value, price/earnings multiples, U.S. economic output, gold, and a normal level of corporate earnings. Andrew adds that the huge amount of cash sitting on the sidelines argues well for impatient investors to release the hounds well before the big hand on the Dow clock points to 5 and the little hand points to 000.
Everyone is entitled to their opinion and a well structured argument carries its own merits. In light of this I am not going to work here dispel any of Andrew’s optimism. I would like to point out; however, that given the cover story I thought Barron’s would have peppered the paper with equally bullish articles and opinions as a show of real support.
What the paper did instead was to print excerpts of David Rosenberg’s piece “A Depression Style Jobs Report” in Alan Abelson’s column, a bearish follow up piece by Felix Zulaf on the page immediately preceding Mr. Barry’s article as well as an interview with David Levy, Chairman of the Jerome Levy Forecasting Center titled “No Doom, Just Gloom”.
Before I get into specifics of what the market practitioners had to say it should also be noted that the lead story in the Money & Investing section of Monday’s Wall Street Journal was titled: “Dow 5000? There’s a case for It”. Wouldn’t it have just been easier for Barron’s to give poor Andy a towel, point him towards the showers and say; “Not this week kid”.
Since his name came up first we’ll start with “Rosie” whose nickname inside “Mother Merrill” belies his outlook on all things economic at the moment. (Just in case the title of his piece didn’t give it away.)
With respect to the amount of space I have left I will repeat the one quote from Rosie I think reflects his sentiment. “The extensive deleveraging, as the credit excess and asset bubble of the last cycle continues to unwind, is exerting a powerful negative influence on the real economy that is far beyond our collective professional or personal experience.”
To summarize the Felix Zulaf follow up article one needs only to read the caption under the picture accompanying the article which reads: “It’s a depression environment”. To be fair, FZ said he saw a bear market rally in the offing of somewhere between 25%-40% lasting 2-4 months. Afterwards, however he predicts the S&P will bottom in 2011 with the SPX boasting a “4” out front. Felix believes that: “Policymakers and investors still don’t understand the process at work in the world economy”.
David Levy, as the title of his article reveals, doesn’t see the end of the world before us, just a million miles of swap to be slogged through. He does see some firmer footing some time in 2010.
Since we live in a democracy I think it best to count the votes and by my reckoning it looks like 1 yay and 4 nays if the vote is on whether the bottom has been reached.
Enjoy the week.
Jim Delaney
Labels: CDS, correlation, credit, equity
posted by Jim Delaney at
3:46 AM
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