Snow globe

Today it snowed. WTF? I expect odd weather in this town, but this is a bit early. However, this does make tomorrow a snow day. Yes, a work from home snow day. Exceeelleeennt.

A few days remain until the US elections. Obama looks likely, however until the ballots are counted I am not certain. Definitely the numbers favour Obama, and he does have enough electoral college votes locked up, plus he's leading in several swing states. My view is that Obama is probably the better man for the job, but he will be tested by the other international powers. I predict within a year he will no longer be the leader of change, but instead he'll be a man forced to compromise in order to do his job. I also predict he'll deliver some of the best presidential speeches we've heard in years. McCain is simply too old, IMO. The man is a war hero and distinguished senator without question. However, there is a certain point where I'm not sure a man is flexible enough to be a world leader. In my mind, the oldest a president should be is 65 when leaving office. McCain is 72 and proposing to enter office. I don't think he would have the energy for the job. In short, time is time. You cannot be young again. I think another interesting dynamic that will evolve in a Obama presidency is he'll need to change his tactics. He's very much run a grass roots type of campaign targeting local citizens and motivated them to get out and vote for him. An entirely different game will be required to manage the senate and congress and other world leaders.

In other news the markets continue to fluctuate. Tomorrow brings a day of intrigue because the Fed is meeting. They are likely to cut at least 50 bp. The market will probably approve. Today saw an over 10% rise in the S&P500. These are volatile times to say the least. I'm considering committing money to such stocks as: GE, MRK, PFE, SU, JNJ, KO, CSCO maybe even BCE. The valuations have become quite low, but these are based on rather optimistic earnings estimates. Still, if you use a forward earnings number a couple of years out these stocks are cheap. I think we still have a bit to go before the bottom. This is all guessing, but my guess is that the market rallies a bit headed into the election and just after, then some unforeseen corporate earnings shortfall sends the market back to the lows. I don't think it's over yet. Too many people are still talking about where the bottom is. When no when is talking about the bottom, we'll be near the bottom. I remember the 2000-2002 bear was like this. When people gave up trying to guess the bottom, we neared the bottom. It's surprising how quickly people forget what a bear market feels like. It's not fun, you question your reason for investing, and usually even the best investor makes a few mistakes. The financial stocks look attractive, but I am wondering what bomb is waiting to go off in that sector. I think the sector almost needs that to hit bottom. The behaviour or the selloff eerily mirrors the tech collapse when both good and bad companies were pounded.

I started watching Californication season 2. I really love this show. There are some witty lines and you really want to see Hank get his stuff together to save his family.

That is all.

This. Is. It.

The stock market is in utter free fall. The US market fell 18% this week along with the TSX. Unrelenting selling everywhere. Today could have been much worse; the US market was down as much as 7-8% before falling to 'only' a 3% loss. Since the peak levels reached in the bull market the major indices have fallen about 35%. Stocks and funds have fared no better.

I think I'm witnessing history. The financial sector finally blew its head off after being too clever by half for many years. They re-packaged packets of crappy assets, sliced and diced and made a fortune using derivatives to 'spread the risk'. However, the models never accounted for several counter parties failing simultaneously, but this is exactly what has happened. The US Federal reserve, Treasury and Congress are pouring money into the system, coming up with plans to save banks, and are now saying they want to take a stake in some of the major banks by buying equity. I believe they will do this to try to put a floor under the share price of the financial stocks. No matter what else happens, the banking and finance sectors are changed. There will be less appetite for risk in the coming months. Already it is more difficult to get credit. The LIBOR rate, which is a key indicator of banks' willingness to lend to one another is at a historical high. The TED spread, which is the spread between US dollar denominated bonds and Eurodollar contracts (Euro-US) is over 4% now, typically it is 1% or lower. This indicates a massive disruption in the flow of credit and debt through the financial system. Very bad. It indicates banks are desperate for short term short term funds and are willing to pay more to secure them.

For us peeps it is all about keeping our jobs. The economy of the world is slowing down. Jobs will be lost. I hope mine is not. I am fairly certain that people are going to end up working much longer than planned. Even someone with a conservative mix of stocks and bonds has probably lost 20% of his capital in the past 6 months. Brutal. Luckily I am years from retirement so I can stand this, for now. I am even buying in the market and fully expect to run out of cash before the market hits bottom.

Here is your chart of the week, the TSX:



But it looks even more impressive for the year:



Time to sleep it off...