Tuesday, January 22, 2008

Worth less, not worthless

Guambat can't speak for other bears but this bear doesn't get much delight in seeing markets fall apart. Guambat is/was bearish because he just couldn't buy into the circus sideshow which is the marketing of "wealth products" by the table pounding fast money, mad money, Captain America crowd.

Just because something is worth buying and having doesn't mean that just any price must be paid for it. The thing that made Guambat bearish was the over-hyping, hyper-teching of the markets, not the notion that capitalism must fail. It was the patent nonsense in throwing caution to the wind and risk out the discount window.

And Guambat is pleased that "values" (which tend to be in the eye of the beholder and holder) are reverting to something less hyped, more affordable, more valuable.

Given that Guambat's frame of reference for "the markets" is the Australian ASX200, it is worth mentioning that Guambat has seen the 5400 level on the index as a likely first (maybe last?) stop on a retracement of its overly bullish highs (which Guambat guesses may well see 4800 before this is all over, or, worst and unlikely case 3500). It's trading down to nearly 5300 today.

If this turns out to be a "mere" bear market, it could all be up from here.
Today's fall exceeded the 2 per cent needed for the ASX-200 benchmark to dive 20 per cent since its November 1, a level defined as a bear market. Australia would join 36 other countries already in bear market territory as of yesterday, according to Bloomberg data.
Guambat is not sanquine that this is, though, a "mere" bear market. It has the makings of something longer and stronger because of the huge amount of ignorance in the financial world (in both senses of the term) about the "value" of all that credit alphabet soup of souped up financially/genetically engineered magicians' tricks that exists ... who knows where?

In US market perspectives, Calculated Risk has produced some charts (click the link and study them) which show the degree to which past bear market plunges have gone, which indicates that a 20% drop is "garden variety". Looking at the Dow Index chart at Calculated Risk, Guambat's not insubstantial gut and intuition is that a 30% drop would not be atypical and a "reasonable" expectation.

With that in mind, Guambat hopes to stay out of the stores until the 30% off sale signs go up.

Of course, markets seem never to go in straight lines, or in the timeframe or direction expected. Thus, Guambat whiles away his time on Tumon Bay and not the French Riviera.


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