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Flashback to March 2009

Here is a video segment taken from March 2009 after an awful jobs report was released.  The title of the video is "US Economy on the Verge of Total Collapse":   http://track-cell-phones.com/us-economy-on-the-verge-of-total-collapse-cnn/   Notice the panic, the desperation and the hopelessness in this video clip.  This was the day of the bottom.  In hindsight, this was the very best day to buy stocks since perhaps the previous major market bottom in 1982.    What can we learn from this?   Today, the exact opposite situation is occurring.  Surely the contrarian investor philosophy of selling and selling short instead of buying is correct.

Popular Slogans

Some current market slogans like "Buy next week when the market is at a peak" are shown in the screenshot below.  It will be interesting to see how they change over the next two years as the bear market returns.

The Stars

Unfortunately in life, there are days like this.  An important key to being happy is to minimize these awful days.  There are no surprises in life.  Nothing "just happens" out of the blue.  There is always an event or a chain of events preceding the "surprise".  Still, it hurts a lot when your dreams in life are busted.  It hurts incredibly more when you see the dreams of people you love being busted and there is nothing you can do.  These intense emotions are part of being human, I guess.  In a recent email message, Greg Mortenson of the Central Asian Institute (CAI) quoted this ancient Persian saying: "When it is darkest you can see the stars."  I am seeing a lot of stars tonight, but it is difficult to appreciate their beauty right now.  It does not help that my portfolio has been getting relentlessly clobbered for 8 months now.

Euphoria & Despair

The S&P 500 is setting yet another new high today, around 1350.  The VIX has fallen to about 15, which is still above its low of 14.30 from last week.  The investing world is full of complacency and euphoria as it is a given that stocks are going higher.  Of course, this means my portfolio is getting absolutely clobbered and I am feeling despair.  My portfolio has been getting hammered for 8 months now, and there is still no sign of letting up.  This is awful and is difficult to deal with, but unfortunately I have gotten used to this.  To rub more salt in my wounds, TLT is up again today at around 93.5.  I was considering selling my losers and purchasing TLT around 89 in February, but decided against it.  This is difficult to take.    P.S. I private email received today from a Senior Vice President (Investments) at UBS ended with the following:   "P.S. Our technical analyst, Peter Lee, who has a great track record going back 20+ years, predicted this AM on a break-in call (VERY unusual) that we will see S&P 500 at 1440-1450 probably by the end of summer !!. That's nearly 10% in 4-5 months on top of the 100% gains since March 2009 ! Did Brandon predict that huge bounce off the bottom ??. Did any of the scaremongers ??.   Bernanke has set things up for an eventual bubble in equity prices but you can't live in a hole waiting for an eventuality while there is so much money lying on the table."

Chinese Real Estate Bubble

China currently has the mother of all real estate bubbles.  As pointed out in earlier posts, this bubble is already starting to burst.  With it, wealth of a nation and the price of world wide risk assets will eventually burst as well.   It is fascinating to look into the factors that created this bubble, and this article is excellent:   http://www.nytimes.com/2011/04/15/world/asia/15bachelors.html?pagewanted=1&_r=1   Decades of the "one child policy" has left China with a large imbalance of men to women.  Therefore, women can be very discerning in their relationships, and they demand a man who owns an apartment.  If you are a Chinese man and you do not own your own pad, then chances are you are single and you will stay that way.  This is incredible!  Chinese women value wealth and real estate over anything else.  Emotionally, that creates a huge incentive to own real estate at any cost even though prices are exorbitant.   In addition, the article correctly points out that the Chinese do not have anywhere else to invest their capital.  Their money will lose purchasing power if it is put into the bank due to negative real interest rates.  The only other option appears to be housing.   The article is interesting for a number of other factors as well.  It points out that over 70% of women in China value money over any other qualities in a man, while 50% of men value beauty the most in a woman.  In addition, by the next decade, there will be 24 million single men without a partner due to the shortage of women in China.  I believe this is insightful into the Chinese psyche.  Given these facts, it makes perfect sense why things like "business ethics" or "saving the environment" do not appear to be important priorities in general for the Chinese when it comes to doing business and earning money.

Morgan Stanley Fund Defaults

Today, there is news that a Morgan Stanley real estate fund has defaulted on a 3.3 Billion USD debt payment for a building that they "owned" in Tokyo, Japan.  The real losers will be the investors who bought the repackaged loans from the fund:   http://www.reuters.com/article/2011/04/15/us-morgan-stanley-real-estate-idUSTRE73E63E20110415 In June 2007, the first cracks of the bubble appeared in the form of defaults of two different highly leveraged real estate funds that were managed by Bear Stearns.  That was the first sign that the economy, and particularly the real estate bubble, was starting to come apart at its seams.  The news was dismissed by nearly everyone, including Jim Cramer, and the markets recovered and made new highs.  However, all was not well below the surface and we know how the story ended.   Last week, we learned that Chinese real estate prices plunged 26.7% month over month, and now we learn of this large default by Morgan Stanley.  The nuclear situation in Japan is deeply saddening, and this has hugely negative consequences not only for the people  but for the global economy as well.  Anything can happen in the short term, but this is not going to end well.