*Evening Whiskey
November 26th, 2007What started off as a promising day in Europe ended in a disaster after HSBC stated that it was going to use $45b of its capital to bail-out its two Structured Investment Vehicles. Another round of “de-risking” took hold of the financial sector, dragging along the general market. Crude oil kept hovering around the $100 mark to make matters worse and bond yields dropped another few pips to underline the flight to quality. Equity markets headed for last week’s lows (which already coincided with the lows last seen in August).
All in al sentiment continues to be negative, shaky at best. Nevertheless some optimistic points can mentioned as well:
- Central Bank helicopters were put into the air again. Both the European Central Bank as well as the Fed indicated that they’ll be pumping cash into the system to prevent the money markets from getting into trouble towards the end of the year;
- Shop Sales the day after Thanksgiving came in better than expected at an 8.3% gain, indicating that people are still willing to pull their wallets when the discounts appear high enough.
From a technical perspective it continues to be the case that most equity markets are “oversold” and the same basically goes for the bulk of the stocks within them. Oil on the other hand is “overbought” and so is the Euro (and Gold).
Could it be that sentiment is too one-sided? Doug Kass (over at TheStreet.com) has some interesting observations:
- Net long hedge fund exposure has plummeted. Like bank trust departments in the early to mid-1970s and mutual funds in the mid- to late 1990, hedge funds are today’s most dominant investors. According to Ed Hyman’s ISI Survey, hedge funds’ net exposure has dramatically dropped from a near record high of 61% to only 42.7%, the lowest level in over four years.
- Individual investors, too, have turned to the exits. According to the AAII survey, individual sentiment is now as bearish as at the intermediate low of summer 2006 and at the primary low of March 2003. Small investors put-buying and short-selling has risen parabolically over the last month.
- Consumer confidence makes new lows. In fact, confidence is now at the lowest level seen since the other real-estate-induced recession in 1992.
Bottoms are never made when the facts are good. Tops never occur when the flow of news is bad. We are inclined to take advantage of the current environment to get good value investments at a discount. If you’re not sure what good value is, just follow these five simple steps.
—— Evening Whiskey is a an irregular update on the state of financial markets and the opportunities it provides by dealingfloor.com. It is not investment advice and not a substitute for your own judgment. When taking on any investment, make sure to have a first aid kit that is jammed with tranquilizers and sleeping pills. History is not guide to the future, nor is anything else. Fortunes are made and lost each day in this arena. If you can’t stand that heat, please stay out of the kitchen.