Monday, December 17, 2007

Don’t Get Scrooged

excerpts from this week's report:*

"The spirit of Christmas is one of hope, charity, and good will to all. However, the tone of many in the equity markets of late appear to be consumed by their loss aversion fears as opposed to viewing current circumstances with their more objective, less emotionally driven valuation assessors in risk aversion mode. A most Scrooge-like psychology.

Of course, many would argue that they are being risk and not loss averse. That the real economy will suffer the fate of the credit derivative fools guided by the blind men at the world’s central banks. (e.g. Wolfgang Munchau’s commentary in today’s FT “Hold tight, the central banks have no plan.”)

To be clear, there is a real economy risk to all this Bah Humbugging. However, it lies not in the “predictive” nature of the equity markets, but in George Soros’ reflexivity principle – the feedback loop from the financial markets to the real economy. For should the fear of a Christmas Yet to Come prove true it likely will be due less to the so-called “wisdom of the market” and more to the self fulfilling prophecy nature..."

"Last Tuesday, I posted on this blog “A Simple Stock Market Balance Sheet”. As listed, there are many strong components on the asset side of the ledger. Yet, Mr. Market seems intent on focusing on the liabilities side, with all its potential real economy..."

also in this week's report:

* Expected Return Valuation Model
* Moving Averages Scorecard
* Model Growth Portfolio
* Investor Sentiment Data
* Chart Focus: Consumer Confidence
* Sectors and Styles Market Monitor
* Key US Economic Indicators

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