Fear as Leftovers

excerpts from this week's report:

"As someone who wrote about the risks of credit derivatives way before it became mainstream, I find it quite intriguing to watch the angst build to extreme levels of fear as “rational” investors get swept up in a loss aversion mentality throwing the risk aversion baby out with the bathwater.

To be sure, there will be more pain to endure as mark-to-myth pricing of illiquid credit instruments is replaced by mark-to-market. And in that process, it is useful to note that the mark-to-market process for illiquid instruments may punish a balance sheet today, but out of the pricing debris of today will come a future revaluation upward of same instruments enhancing the balance sheets of tomorrow..."

Investment Strategy Implications

"There is much to be concerned with the current state of affairs. But as with all such periods of fear, the trick is not to get too drawn into the emotional (a/k/a loss aversion) aspects of the phase. As the expected return valuation model on the next page shows (see report), we are well into undervalued territory. This, combined with the aforementioned points (see report), strongly suggest that the US equity markets are near the end of this corrective phase. Now we await the near term timing tools to generate a buy call. That point has not been reached but we are close..."

also in this week's report:

* Model Growth Portfolio
* Investor Sentiment Data
* Sectors and Styles Market Monitor
* Key US Economic Indicators

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