Global: the timing of bubble trouble
Summary
In a recent piece we noted that "Once we get the first wounded reporting the extent of their damages, Wall Street will go wildly bearish." Below, we put more timing on to the word "once" and reiterate our long - held sirens about what sector and what currency to avoid. Crucially, we give you some direction today about when we think that you should sell out all of your stock and ETF positions.Topics Covered
1. When and why will Wall Street crack?
2. How to save money off this idea
Background
1. When and why will Wall Street crack?
In our recent update on the Global Crash Anatomy (2), we suggested that once news starts getting leaked into markets, Wall Street will get messy.
Recently we had a lunch with a major US corporation, and the executive was telling us just how much his company is being "squeezed" in the US market: business there appears to be falling off a cliff - as is the dollar. Thus, in doing his budget planning for 2008, this beleaguered executive has to assume that earnings from their American operations will decline substantially - so his Asian operation is part of the fire-fighting squad that has to bail - out America.
Surely he will not be the only executive of an American multinational corporation under such marching orders, will he?
Thus, two claws in the wind suggest that you want to batten down your hatches this January:
- The past: the sub - prime mess of 2007. Corporate results season gets discounted. The fallout from the current sub - prime mess will start infecting balance sheets and financial reports as of January, but my hunch is that the odd bomb will be leaked into the market before - so as to "warn" investors. Indeed, The Economist of 27th October p. 81, put the symbiosis of this mess neatly: "But it is also clear that the financial system is less sound than it seemed. Conventional wisdom held that the process of slicing debts into numerous structured products dispersed risk and thus reduced it, especially for banks. But it turns out that the risk that banks ushered out of their front doors sneaked in again through the back. This is because the new owners of structured assets are either big client of the banks or have borrowed from them". In particular, the journalist mentions leveraged hedge funds as the "big clients" who have "borrowed from them" , and
- The future: the Economic Time™ worsens in America in 2008. Our long - held view is that The Economic Clock™ has been ticking on "bad" for a good year in America. That ticking will get all the louder, now that the sub - prime mess has added oil to the flames of economic destruction. Hence my friend's need to set a very ambitious Asian budget for this year - in order to help his American operations out. You all read Prof. Bernanke's growth warnings of last Thursday, right? We continue suggesting that in 2008, America must face stagflation.
2. How to Save Money Off This Idea
- Always consult with your financial adviser first.
- Keep avoiding the finance sector - anywhere in the world. Do you know what they are not telling you about their sub - prime exposure? Do you know what you don't know? I, for one, don't know what I don't know...
- I have just instructed my bank to sell all of the positions in both the funds latest in the middle of this December. If I sell earlier I will tell you. Of course I will lose some weeks' performance, but I have advised enough traders to know that news - bad or good - gets discounted. You just need one yell in the barn and Wall Street will go wildly bearish...
