September Madness - Who will be the bracket winners?

So when did this mess really begin? I would say the cartoon below really hit the nail on the head.


I noted in my last blog entry that the market might enter a base building process and that I was not expecting a blast off from this level. I also noted that if this is in fact the worst financial crisis of our generation as many pundits are calling it then additional potential weakness was probably in order at some point. It appears that we may be on the verge of the second scenario as the market could not hold onto the gains generated from anticipation of the "Bail Out/Rescue Plan" and sold off into the close. Quite  bit of technical damage has been done to the market and while we may see some intermittent rallies the chance of sustainability seems to be waning.

I thought today I would list some of the positive and negative aspects of the current market to begin to ponder what will be the key items to watch.

Credit Conditions:


The chart above shows how much liquidity is being pumped into the system through various channels. The negative is that these levels show the stress that is currently in the system. The positive is that this amount of liquidity could be a large catalyst once confidence is restored.

The chart below shows how much debt and leverage has grown. This is a serious problem and will take some time to work our way through but the markets have discounted quite a bit of this leverage as reflected by current equity valuations.


The ECB is showing signs of stress as well as the ranks are becoming restless and beginning to crack with the latest Germany backing deposits as well as a means to try and regain confidence. 

What else is on the radar... It appears investors are beginning to scrutinize ETN's and other structured products. See the link below. 

http://biz.yahoo.com/etfguide/080925/38_id.html?.v=1

The Muni market is also feeling the affects of tight credit and is starting to get the headline risk that I have been anticipating. As municipalities face rising costs there will be more news that will accentuate the current spread over US Treasuries offering investors what I believe will be a great opportunity to but good quality muni's at extraordinary cheap prices relative to Treasuries. Unlike our Federal government Muni's cant keep printing money and therefore tend to get their fiscal houses in order. Essential service and GO's will in my opinion be one of the best plays for 2009. It wont be fun and games at first but I believe patient investors will be amply rewarded in the high quality muni market.

Anecdotal Evidence:

One of the most positive signs that the market is close to finding some resemblance of a bottom/base building process is the cartoons that show up and when they show up. 

Here is the bracket winners so far (Click Link): www.dukejones.com

Anther sign is when an actress decides not to be the closing bell ringer for the NYSE due to the current conditions of the market (story here: http://tinyurl.com/53jd3e ), we are reaching levels of anxiety that usually come close to turning points even if they are intermediate turning points. 

So what does the future hold? Here is one potential review: A good tongue and cheek of what may lie ahead.  http://tiny.cc/jLzUm

 (copyright 2008, duke dot jones at gmail dot com)