Tuesday, September 30, 2008

What’s In A Name?

A bailout by any other name would smell just a foul. Or would it?

The Bard may have captured the essence (pun intended) of the smell test, but then again he didn’t run for elected office. Nor did he live in a media saturated, image drenched world as we do. Therefore, when Bush left it up to the political tone deaf Treasury Secretary and Fed Chairman to be the messengers of the plan to rescue the US and world economy, he violated the primary rule of any political action – control the message. And controlling the message means framing the issue properly with a title that captures the essence of the desired action and one that will help win the hearts and minds of voters and their representatives. After all, who is in favor of a bailout of any sort? Least of all one for the “New York City fatcats (who) expect Joe Sixpack to buck up and pay for all of this nonsense*”?

To some, what you call something may appear to be trivial. However, behavioral scientists (and common sense) will tell you that many decisions made in life (including investing matters) are not done in a dispassionate, rational manner but by using mental shorthand tools (heuristics). And part and parcel of that process is how you frame the issue (framing). Therefore, if you let something get framed as a “bailout”, that’s what it will be perceived as.

So, as many members of the House rethink their profiles in cowardice by putting re-election before country, perhaps the administration and congressional leaders might consider a better process of explaining more clearly to the American public and their highly re-election conscious representatives what it is at stake.

The “Rescue America from a Depression” bill may not be the best smelling sausage to come out of Washington, but the stench of a deep recession will smell a heck of lot worse.

*Rep. Ted Poe (R), Texas

Monday, September 29, 2008

Cutting Off Your Nose to Spite Your Face

As of this moment (2:50 PM eastern) the House of Representatives has dealt a huge blow toward stabilizing the financial markets and avoiding a world economic crisis. The less than perfect Paulson bill would have accomplished that goal in numerous ways. One of them, which has been least understood and grossly underappreciated by most other than those who read this blog, is the method by which the Treasury and the Fed would have finessed the rules and stopped the gasoline that turned a house fire into an inferno – FAS 157.

The Paulson plan’s tourniquet that would have stopped the writedown bleeding is mark-to-maturity, the plan’s component that would have enabled Treasury and the Fed to finesse the insanity of FAS 157’s mark-to-market and ceased the graveyard spiral of lower values, more capital, forced sales, lower value, etc.

What Now?

There is still time for the House to come to its senses and immediately pass a bill that would be far better than the alternative of no bill. On the assumption that such an action did not occur, however, then financial assets and therefrom the world economy will suffer the consequences the likes of which are extreme in the best case.

Yet, there is an alternative, an action that could help alleviate the carnage, one that comes from the source of the carnage – FASB. A repeal or more likely a suspension of FAS 157 would go miles toward accomplishing what the Paulson plan would have achieved – stopping the graveyard spiral in asset values.

As for the odds of that happening, the answer is simply “who knows?” However, the consequences of no action by either the House or FASB are frankly unthinkable. Let’s pray for less principled outrage and more adult, common sense decision-making.

Friday, September 26, 2008

Quotable Quotes: Picture This

Here are three pictures that seem to capture the events and mood out of Washington.

The number of people who actually listened to President Bush's 12 minute speech.

The behind the scenes "discussion" at yesterday's White House meeting with congressional leaders, McCain and Obama, and Bush.

The one man who can fix the entire mess.

Have a good weekend.

Thursday, September 25, 2008

Minyanville posting:

This week's Minyanville posting provides the fundamental strategy of exploiting professional investors' tendencies.

"Professional investors dominate the market. They have access to tools and information that the non-professional investor doesn’t. This fact, however, does not preclude the average investor from taking advantage of the professional investor’s tendencies, allowing for the following opportunities:..."

To read my Minyanville articles including today's posting, click here

Tuesday, September 23, 2008


As the world listens to Messrs. Paulson and Bernanke argue for support of their three-page $700 billion manifesto, I wish to focus your attention on a central aspect of the credit crisis – the scale and scope of the credit derivatives octopus.

To illustrate, consider this: If scientists can “identify all the approximately 20,000-25,000 genes in human DNA”, and “determine the sequences of the 3 billion chemical base pairs that make up human DNA,” then why can’t the financial scientists identify the extent of the credit derivatives market?

This is a national, if not global, emergency. In such an emergency, is it acceptable to say, “We don’t know what we don’t know?” Or, “It’s too hard to figure out.” Nonsense. If this emergency were a war, would it be acceptable to say, “We can’t build that tank or missile because we don’t know where the steel is”? Of course not. So, why is it acceptable to say we don’t know the extent of the credit derivatives octopus?

Perhaps certain US government officials do know but they are just not saying so. Perhaps those certain US government officials reside in the US Treasury and Federal Reserve Bank. If so, then their actions these past anxiety-riddled months are about as inept as could be possible as a more comprehensive plan of action should have been constructed (from such knowledge) rather than the firemen Hank and Ben put out the latest financial wildfire this weekend, right now routine we have been treated to.

Investment Strategy Implications

Along with the insane decisions to implement FAS 157 and eliminate the uptick rule, the outrageous neglect on the part of those charged with oversight of the entire financial services industry, and the fundamental rationale supporting each (efficient markets and laissez-faire), you can add the unacceptable argument that it’s just too hard to figure out the credit derivatives octopus.

In the process, the world’s markets and economies are now forced to experience a disorderly unwinding of the credit bubble – a disorderly unwinding that could have been mitigated had certain action steps, and the rationales supporting them, been avoided.

Sadly, today’s testimony will almost certainly contain a lot of shoulder shrugging “we don’t know what we don’t know, it’s too hard to figure out” statements. Unacceptable.

Friday, September 19, 2008

Quotable Quotes: Lost

With all the turmoil this past week, there is little doubt that more than a few investors had a sense of feeling lost. Therefore, a few words on the topic.

“If we open a quarrel between the past and the present, we shall find that we have lost the future”
Winston Churchill

“There are only two people who can tell you the truth about yourself - an enemy who has lost his temper and a friend who loves you dearly.

“Not until we are lost do we begin to understand ourselves.”
Henry David Thoreau

“Stand still. The trees ahead and bush beside you are not lost.”
Albert Einstein

“Then indecision brings its own delays,

And days are lost lamenting o'er lost days.

Are you in earnest? Seize this very minute;

What you can do, or dream you can, begin it;

Boldness has genius, power and magic in it.”
Johann Wolfgang von Goethe

Have a good weekend.

Thursday, September 18, 2008

Minyanville: Understanding the Panic of 08

This week's Minyanville posting provides a concise review of how things got to where they are and how investors might go beyond their own fears and exploit the panic, including 2 buy recommendations in the infrastructure area.

"The Panic of '08 has nearly every investor convinced that the world is coming to an end. With the financial system shaken to its core, who can blame them? But is the world really coming to an end? Are the "evil doers" on Wall Street getting their just deserts while causing unbearable hurt for the rest of us? Is it time to repent, for the end is near?..."

To read my Minyanville articles including today's posting, click here

Wednesday, September 17, 2008

From Chaos to Sanity: The Imperative of Logic

Rules Matter.

If the NFL changes its rules of play, does that not have an effect on the game? So, why would a rule change by the FASB or the SEC or a law by Congress not have the same game changing effect?

When the FASB said that illiquid and opaque assets should be valued at their last sale (or whatever could be approximated as such), were they cognizant of the impact it would have on financial institutions with their capital requirements?

When the SEC eliminated the uptick rule and looked the other way on naked short selling, were they cognizant of the impact it would have in facilitating the bear raids from short sellers? And were they aware that such bear raids would virtually take off the table any capital raising options via an equity sale for financial stressed institutions?

When Congress let the financial innovation genie out of the bottle via various laws (mostly in the area of deregulation) and lax oversight, were they cognizant of the impact it would have on the financial engineers on Wall Street?

The answer to all of the above is apparently not.

Let me clear – the problems of excess amounts of leverage, animal spirits, and bad business decision-making are at the core of the credit crisis. There is no doubt that this is where the blame must lie. Be it no-doc, no-income mortgages, or homes purchased with the intent of flipping them in six months, or credit cards to teenagers in high school, or junk bonds with very generous covenants, the list is very, very long. However, the circumstances produced by such bad behavior are not the only culprits. For when coupled with virtually no oversight and the above noted rule, legislative, and regulatory changes, the bubbles that were blown are what the financial system is now struggling to unwind. Which brings us right to the single most important aspect of the crisis – will the unwinding of the excess amounts of leverage (the deleveraging process) be an orderly or disorderly one?

If left unchanged, the answer is what you see on your screens everyday. Firemen Hank and Ben rushing about to put out one financial wildfire after another.

But it need not be this way.

No doubt, there are many ways to achieve the same end result – a more orderly transition of the deleveraging process – but we’ve got to get beyond the reactive mode and become more proactive to begin to move from chaos to sanity. So, let me humbly offer a few immediate solutions to the credit crisis:

1 - Modify FAS 157

Change the rule from the insanely destructive and academically illogical mark-to-market to mark-to-moving average. By shifting the “fair value” reading from the last sale to the average of the past six months, you will get the closest thing to a reasonable compromise between the market fundamentalist ideologues (with their quaint notion that markets are always efficient) and the realists who know that in the short term investors can be anything but rational, especially when it involves illiquid, opaque assets.

2 – Require more transparency in illiquid assets

The FASB’s recent rule change for FAS 133 appears to be one such solid step in the right direction. More needs to be done.

3 – Begin the process of creating standards for derivatives

Financial innovation is not going away. And when conducting properly, financial innovation can be a very positive force for the real economy. However, when so much is constructed in the dark, in times of stress it becomes impossible to determine where the bodies are buried.

4 – Restore the uptick rule

Since the SEC has finally woken up and instituted sanity into the naked short selling arena, they now need to revisit their laissez-faire, market fundamentalist ideology and restore the uptick rule. By doing so, it will significantly reduce the incentive for the pre-Depression era bear raids that are wrecking such havoc.

5 – Move with a sense of urgency

I began this commentary with a reference to football, so let me return to that metaphor.

In a football game, there often comes a point where time is of the essence. And those teams that are prepared for such times act with clarity and a strong sense of urgency. They may not always succeed but the process is the correct one. The current crisis requires such a sense of urgency. If left unchecked, however, the bear forces at work will continue their bear raids (on equity and debt) until the threat to the system becomes more than it can withstand. Frankly, financial Armageddon is not too strong of a phrase.

Investment Strategy Implications

The impact on the economy has now become so significant that lives are being impacted, most dramatically within the companies that are being driven out of business or into the arms of the US Government and for why? Because rule changes have altered the game.

The laissez-faire, market fundamentalism Reagan doctrine is dead. Over. Finished. Kaput. In its place will be a return to the regulatory and oversight environment that preceded it. The danger is if the pendulum swings too far the other way and restrictions are imposed that severely limits the US’s ability to compete. Given the populist rant of the two presidential candidates, such a move to overregulation is not out of the question.

As I noted yesterday and Mr. El-Erian stated in his interview, transitions can be very messy. Let’s hope that some degree of clear thinking will produce the kind of results needed.

Tuesday, September 16, 2008

The Real Risks of Deleveraging

The deleveraging process that is dramatically impacting the economy and markets has two very serious consequences to it. One deals directly with the insane process of mark-to-market of illiquid, opaque assets. The other pertains to the effects deleveraging will have on the real economy. Allow me to highlight the key points of each.

In terms of the financial economy, the process of deleveraging can be characterized as feedback loops gone wild. Virtuous circles (and their accompanying animal spirits) give way to vicious cycles, in which lower prices beget write-downs, which beget lower prices. And on it goes. In the process, bad assets become toxic, especially for financial institutions who, unlike other entities, have capital requirements that must be met.

There is nothing new in all this. Bubbles and panics have been around for centuries. And bad behavior is always punished eventually. The larger macro economic issue is the fact that the global economy is in transition (listen to El-Erian’s comments below). The dominant question in such a macro economic environment is whether the transition will be an orderly or disorderly one (ex. a declining US dollar). What is new, however, is the impact that the rule change made last November that has turned a difficult situation into the disaster the financial markets are facing today.

Thanks to the well-intentioned actions of FASB last November and the updating of the accounting rule FAS 157, illiquid assets must now be marked to the current market price (mark-to-market) in an attempt to reflect the true value of the asset. This is all well and good were it not for the fact that marks in highly illiquid, opaque markets can produce a highly questionable reading as to what constitutes "fair value".

Moreover, when such marked-to-market assets are owned by financial institutions operating with high degrees of leverage often reliant on short-term financing with mandated capital requirements, you have a recipe for disaster. But don’t take my word for it. Listen to Paul Volker many months ago or Steve Forbes on Fox Business News last night*.

Lastly, so much of the current investment climate has been co-opted by short-term momentum players, many of which are aggressive short sellers. Does anyone seriously believe that these players are interested in what the "fair value" of an asset is?

All this creates a toxic climate for toxic assets.

The second risk re deleveraging is how it will impact the real economy. One effect is already being felt – fewer loans are being made. Gone are the days when credit cards, auto loans, and no-doc, no-income mortgages literally flew out the doors of financial institutions. Gone, also, are the very generous covenants attached to junk bonds. In their place is an austere environment where liquidity is abundant but the risk appetite in frozen with fear. This is all bad but what makes this situation highly dangerous is the state of the US consumer.

The US consumer, the spending workhorse of the world economy has a personal balance sheet that is in serious disrepair. In the current economic environment, the need to reduce debt and increase their personal equity will only come about through a process of savings out of income. Say goodbye to your personal (home) ATM. Say hello to a higher savings out-of-income rate.

But savings out of income coupled with extremely low levels of borrowing means that the US economy is on for a period of depressed economic activity. The shop-til-I-drop, I-must-sustain-my-unsustainable-lifestyle US consumer is toast. A weakened economic climate coupled with the negative wealth effect (from real and financial assets) and a looming retirement calendar will do that.

All is not lost. There are pockets of strength that can help alleviate the financial crisis and perhaps help avoid a worsening contagion to the real economy. For example, there is a segment of the world economy that appears to be poised to emerge as the source of demand – the emerging middle class of emerging economies. Growth in their economies should remain positive and, given their generally solid balance sheets (not to mention fairly good policy processes), should make a positive contribution to global growth and stability. Not quite 100% decoupling but more than the pessimists believe.

By the way, speaking of solid balance sheets, most investment grade corporations have very solid balance sheets. The ability to weather a financially-inspired storm is quite favorable.

Then there are the large pools of capital around the world that sit waiting for the crisis to resolve itself. From sovereign wealth funds to money market accounts to central banks, liquidity is more than ample.

Lastly, Americans have a great capacity to adapt, to innovate, and come together in common cause**. All these factors should not be ignored as they represent a path out of the credit crisis quicksand.

There is one final point that I wish to make.

Rule changes matter. FAS 157 is a well-intentioned rule that is rooted in an antiquated principle known as the Efficient Market Hypothesis. For while investors in the long run are rational and risk averse, in the short run they are anything but. Modifying FAS 157 would one very easy way to reduce the vicious cycle of mark-to-market.

Investment Strategy Implications

The technical damage done to the equity market is sufficiently bad (but interestingly not terrible) that aggressively adding to positions should be done with great care. However, a prudent portfolio management policy of sector tilting coupled with a mindful regard that stocks have an upward bias (see prior blog posting on this point) is always appropriate, made even more so when panicky selling rules the day.

*FYI - Little ole me has written on this topic on several occasions on this blog and in reports. I encourage you to use the topics link for credit related issues to your left to explore the writings further.

**This point is contingent on a less divisive political climate. Therefore: Memo to McCain’s advisors – cool it with the Karl Rove tactics. You may win the election just like W did, but you will cause severe damage to the country in the process, just like W did.)

Friday, September 12, 2008

Quotable Quotes: Mohamed El-Erian and FT Editorial

In times of great uncertainty, a little perspective is always helpful. Therefore, as much as I would like to post quotes on pigs and lipstick, the inflection point that the markets seem to be poised at suggest a more serious approach to this week's quotable quotes. Therefore, here are two items for your consideration.

The first is yesterday's editorial from the Financial Times (see below) rendering their advice re Lehman and the US government. The second is a recent interview that Tom Keene with Bloomberg conducted with the Co-CEO of bond giant PIMCO, Mohamed El_Erian. The length of the interview is 17 minutes 44 seconds.

Have a good weekend.

Decisive inaction

Published: September 11 2008 19:42 | Last updated: September 11 2008 19:42
The US government has bailed out Fannie Mae and Freddie Mac. The market now seems to view Lehman Brothers and Washington Mutual as next in line, with possibly more to come. It is time for the authorities to step back. Further such rescues should be avoided like the plague. It is the job of a government to save the financial system, not individual institutions. What has been done so far should be enough.

Yes, banks are going through tough times. The loss of shareholder value in Fannie and Freddie adds to losses from exposure to the housing market and consumer debt. The settling of the credit default swaps on the two mortgage giants may also be messy. Raising fresh capital is also increasingly difficult. This is not surprising, however, given how bad news has kept dribbling out.

Yet a sudden failure, such as that of Bear Stearns in March, seems unlikely, since liquidity is assured by the Federal Reserve’s decision to open the discount window to investment banks. This is buying damaged institutions time needed to come up with a private sector solution. That is what they must seek.

Apart from offering short-term liquidity, the Fed and the Treasury should remain on the sidelines. It is not obvious how they could help a bank such as Lehman, other than by injecting equity. It is even less obvious why they should.

The government was right, however, to bail out Fannie and Freddie. Their failure would have been a disaster for housing finance. Given their scale and the implicit government guarantees of their debt, failure would indeed have had systemic consequences. Yet this is not true for other US institutions .

The authorities now need to draw a line. Provided the system as a whole is kept functioning, weak institutions must be allowed to fail, as part of the ongoing adjustment. Equity holders have suffered in previous bail-outs, but creditors should also lose where banks prove insolvent. In the case of commercial banks, the Federal Deposit Insurance Corporation takes charge. No such scheme exists for investment banks. But, having addressed market panic, through the provision of short-term liquidity, orderly wind-ups must be allowed, where needed.

It is only if house prices fall much further and losses mount to enormous magnitudes that the authorities might have to contemplate a fiscal bail-out, as in Japan and Sweden in the 1990s. Fortunately, from what one can identify at present, the US financial system is a long way from that. An accommodative monetary policy and an aggressive fiscal policy is as much as markets should now hope for.

Thursday, September 11, 2008

Minyanville posting: "Making Divergences Work for You"

This week's Minyanville posting revisits the Divergences approach to market timing.

"To borrow from a famous quote, "I'm scared as hell and I'm not going to take it anymore."
At the end of every major market move, an overshoot takes place - that is the point when...."

To read my Minyanville postings, click here

Wednesday, September 10, 2008

The Fear Side of the Greed and Fear Cycle

“The only thing new in this world is the history that you don't know”
Harry S. Truman

Just as day follows night and spring follows winter so, too, does investor psychology follow the seasons of emotions from greed to fear and back. Behavioral finance rules and the Efficient Market Hypothesis remains a hypothesis. Loss aversion over risk aversion.

So, to help investors in need of a little timely perspective, the above two charts (click images to enlarge) reflect the ever reliable greed/fear cycle quite nicely.

Investment Strategy Implications

The contrarian in me believes in the Baron Rothschild saying, "The time to buy is when there's blood in the streets". It is an investing example of President Truman's quote and a testament to the reliability of the greed/fear cycle. Therefore, since the epicenter of the current fear cycle is the Financials, I can't help but notice the recent relative strength in Financials in the midst of outright panic.

Tuesday, September 9, 2008

P/E Scenario Modeling

For the past several months, the S&P 500 has been locked in a trading range of roughly 1230 to 1300. Why has it settled into this particular range? Allow me to offer a few reasons via a P/E scenario forecast.

In last Thursday’s blog entry titled “The Looming Valuation Adjustment Process”, I provided a table that reflected five generalized economic scenarios and their accompanying P/E levels. Ranging from great to terrible, the table put some meat on the valuation bone and enabled stock price parameters to be considered. Now let’s take this to another, more complete level.

The above table* takes the five economic scenarios and attaches a probability to each. Moreover, each such economic scenario necessarily includes a rough estimate of the likely operating earnings level for the S&P 500 for each economic situation.

Obviously, one is free to debate, even disagree, with various aspects of the table (the probabilities, the economic scenarios, the operating earnings estimated, the definitions). But I would argue that there is a certain richness in this simple model that, like the equally simplistic discounted cash flow model, captures nearly all of the essential valuation points**.

Investment Strategy Implications

Is it a coincidence that for the past several months the S&P 500 has been oscillating around the 1251 bottom line number noted in the above table? Or, is the market engaged in an internal debate that remains unresolved at the moment: What is the appropriate P/E level for the economic times that we live in?

*click image to enlarge.
**Valuation 101 teaches us that P/Es, like the discounted cash flow method, incorporate the key valuation inputs from the real economy.

Monday, September 8, 2008

Sectors and Styles Strategy Report: September 8, 2008

excerpts from this week's report*:

Technical Analysis
"Last week’s market performance pushed the Moving Averages Scorecard to its worst level thus far, at 16.67% bullish. A potential key reversal might be forming in the Financials but there is still considerable work to be done before such a call can be made with any confidence."

Valuation Models
"Next week, I will begin providing a scenario range for each of the economic scenarios listed below (see report*). This will follow along the lines of the top-down earnings scenario published in prior reports. This should help quantify the probable economic outcomes from an economic scenario perspective."

*To learn about the report, subscriber features, and other benefits, click here

Friday, September 5, 2008

Quotable Quotes: Vice Presidents Agnew and Quayle

For those who worry that a Vice President Palin might be too great a risk, it seems advisable to remember that the country survived two recent occupants of the office: Spiro T. Agnew and Dan (Potatoe) Quayle.

Note: Feel free to add a rim shot after each quote.

Spiro T. Agnew quotes:

*“In the United States today, we have more than our share of the nattering nabobs of negativism.”
*“I apologize for lying to you. I promise I won't deceive you except in matters of this sort.”

Dan Quayle quotes:

*“Bank failures are caused by depositors who don't deposit enough money to cover losses due to mismanagement”
*“I have made good judgments in the past. I have made good judgments in the future.”
*“I pledge allegiance to the Christian flag, and to the Savior, for whose Kingdom it stands, one Savior, crucified, risen, and coming again, with life and liberty for all who believe”
*“The future will be better tomorrow.”
*“What a terrible thing to have lost one's mind. Or not to have a mind at all. How true that is.”
*“My friends, no matter how rough the road may be, we can and we will, never, never surrender to what is right.”
*“If you give a person a fish, they'll fish for a day. But if you train a person to fish, they'll fish for a lifetime.”
*“It's time for the human race to enter the solar system.”
*“It's wonderful to be here in the great state of Chicago.”
*“The global importance of the Middle East is that it keeps the Far East and the Near East from encroaching on each other”
*“Hawaii is a unique state. It is a small state. It is a state that is by itself. It is a -it is different from the other 49 states. Well, all states are different, but it's got a particularly unique situation.”
*“I stand by all the misstatements that I've made.”

Have a good weekend.

Thursday, September 4, 2008

Minyanville posting: "The Many Faces of the Bear"

This week's Minyanville posting focuses on the key differences between secular and cyclical bull and bear markets:

"School’s in! Let’s take a quick course in cycle analysis: It’s a bear market. So what else do I need to know?
Actually? A lot..."

To read this week's complete Minyanville posting, click here

Wednesday, September 3, 2008

The Looming Valuation Adjustment Process

A powerful argument is being made by my good friend and frequent Market Forecast panelist, Rich Bernstein, in his most recent report – “Valuation Now at Historical Extreme”. The chart to your left (click image to enlarge) is from Rich’s report and shows what I noted in my Minyanville posting last Thursday, Stagflation Lite? – inflation coupled with a slow growing US economy warrants a much lower P/E ratio then the current “great times” level of 20x earnings.

As the chart plainly shows, the current level sits well outside the sloped trend line and ominously close to the prior market peak levels of March 2000 and August 1987.

Partially explaining this enthusiastic valuation level and a major factor in distorting valuation models is the optimism expressed in the bond markets, both in longer-term Treasury yields (10 year, for example) and TIPS spreads, as well as a remarkably low VIX. All three are at odds with the potentiality of a highly uncertain period ahead, exemplified by a stagflationary environment, even a stagflation lite version. Troublng is the fact that corporate default rates are set to rise beginning next year, perhaps producing a flight to quality conundrum, which may explain in part the currently low yields the US Treasury markets are producing. Yet, unless one buys into a global recession scenario*, this low yield/low risk conundrum warrants valuation model adjustments to reflect the stagflation risk, if not the generally uncertain times ahead.

Investment Strategy Implications

While my investment strategy conclusions may differ from my good friend Rich’s, his primary point re inflation and P/E ratios is highly relevant and most timely. As investors face the last third of this woeful year, a look ahead into 2009 is fraught with danger. And despite the recent, and I would argue overdone, commodity price reprieve, one cannot exclude from that list a stagflationary environment that must find its way into valuation models.

Therefore, while the near-term countertrend rallies (and concurrent cyclical corrections in commodity related sectors) may encourage some to view any stagflationary environment as moot, I would prefer to participate while not losing sight of the looming valuation adjustment process.

*Conversely, one must buy into the rose-colored glass view of bottom-up analysts, as noted last Tuesday ("There They Go Again").

Tuesday, September 2, 2008

Sectors and Styles Strategy Report: September 2, 2008

excerpts from this week's report:

Model Growth Portfolio
"The underweight in Healthcare and the good results from Mid and Small cap growth as well as the EAFE growth helped produce the good weekly relative performance results.

Last week's relative performance pushed the year-to-date results back up over 300 basis points to 327 over the market..."

To learn about the report, the subscription benefits, and for more information, click here