First, Stop the Rot

excerpts from this week's report:

“What seems to also be lost in all the noise re rate cuts and traditional real economy stuff is the concurrent effort of the Fed and other interested parties in fixing what got broke. Specifically, the financial model that gave us the Great Moderation (lower rates, low inflation) and all the wonderful real economy benefits complements of Globalization.”

“Searching for the Magic Formula”
Blog posting November 29, 2007

This morning’s Treasury announcement re the regulatory structure is the long overdue first step toward the new financial order so vital to a properly functioning capital markets. It is encouraging to hear Sec. Paulson correctly note that “Our first and most urgent priority is working through this capital market turmoil and housing downturn, and that will be our priority until this situation is resolved.”

As noted in a recent Financial Times commentary, first, stop the rot.

However, as with the re-regulatory proposals put forth this morning, stopping the rot will take time. And with time comes pain from the black hole of the world of credit derivatives. For example, consider what the current issue of the Economist notes re credit default swaps and hedge funds:..."

Investment Strategy Implications

"The complexity of the situation is captured quite well in the Economist article. And while the efforts of the Treasury and the Fed are now clearly headed in the right direction, the magnitude of the problem will remain an overhang on the capital markets with additional disruptions likely to occur. You don’t know what you don’t know is alive and well..."

also in this week's report:

* Expected Return Valuation Model
* Moving Averages Scorecard
* Model Growth Portfolio
* Sectors and Styles Market Monitor
* Key US Economic Indicators

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