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Thoughts on Market

These excerpts are from Bill Cara’s blog, yesterday and today.

Daily Report for Thu, May 29, 2008

"When the price of oil starts to come down there will be some relief to the US airlines. I anticipate some form of government intervention before most of the airlines go bankrupt again. The "New" shares will soon be required to become "New New" shares.

From the pockets of US airline employees to those of the Middle East oil sheiks. You’d think somebody other than Texas oil people who are running this Administration and the past one would be able to take control after the government changes hands in January. Rather than taking a unified political stance against Sudan, as they did this week, you’d think the three Presidential candidates might first line up against the urgent problems that exist today in America, which is the food and oil one that is bankrupting the country….

The bottom line is that Stagflation is worsening, and I have never seen such conditions do anything but tear apart the prices of equities and bonds. That too will really hurt the whole financial group, leading to more losses and more staff cut-backs in future.

As I see it, the Bear market has just begun. Unless there is a sudden and sharp pull-back like 1987, the Bear could linger. As long as fuel and food costs stay high and the housing industry remains in shackles, I think the equities Bear could last through 2009…"

 

Bill Cara’s Community Chat, Fri., May 30, 2008

"I am impressed that more seasoned Wall Street people are speaking out today about the inequities in capital markets. Stephen T. McClellan CFA, is one whose views are quite similar to my own.

Author of Full of Bull, Stephen is a former Wall St analyst with 32 years experience, including 18 years at Merrill Lynch and eight at Salomon Brothers. He has ranked on the Institutional Investor All-American Research Team for 19 straight years and on the Wall St Journal Poll for seven years. He is in the Journal’s Analysts Hall of Fame.

Essentially, Stephen believes, as do I, both of us having been there for many years, that Wall St’s job is to shift investment risk to the buy-side, so the glass will always be at least half full. As you know by now, the buy-side’s job is to stay independent and objective and to focus on risk management, particularly in Bear markets.

To support his book sales, Stephen’s publicist sent me the following article, entitled "Wall Street Won’t Tell You It’s a Bear Market" I think you will enjoy it.

We are in a bear market, but Wall Street will never admit it. It is so emphatic in a bull market, but loath to address bad times. I know the market is only off 10-15% from its October 2007 peak, but just wait. I spent 32 years as a securities analyst on Wall Street, and unlike the current youthful generation of analysts, I experienced several major downward cycles. The current economic and financial backdrop is probably the worst since the 1930s depression. But it doesn’t seem like that if you listen to stock brokerage commentary, TV media or the government.

It is hard to keep track of all the bubbles, especially those that have not yet quite burst, such as oil and commodities, commercial real estate, consumer credit and stocks. Busted bubbles are more obvious, but the degree and duration of the damage is still unknown — residential real estate, sub-prime mortgages and CDOs, debt derivatives, banking and brokerage system, U.S. dollar, federal budget deficits and spending, bond insurers, employment, GDP growth, etc. The official inflation CPI reading in March was +4%, but the reality with all in, adjusting for the convoluted government numbers, is in the range of 7-11%. And it will get worse. Future inflation will be exacerbated by the ongoing massive federal bank, brokerage and other quasi-agency (Fannie Mae, etc.) bail-outs.

The economy runs in cycles; full recessions every few years. The last real downturn was in the early 1990s; the one in 2002 was incomplete. Recessions and stock market plunges have a cleansing effect, setting the stage for renewal and the next expansion phase. The Fed cannot keep the system propped up forever. It is running out of silver bullets. Lower interest rates are not stimulating the economy. There is a pyramid built on huge debt leverage.

Click here for more.

 


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