1. Global Stock Markets are in the midst of a correction
2. This sell-off is discounting U.S. led economic and consumer weakness
3. This weakness is substantially the result of the rationalizing of
U.S. led housing bubble, a process we have long discussed, predicted and
believe to be the reconciling of a necessary evil.
4. Credit markets in the U.S. have rapidly deteriorated with banks
having to book substantial losses on loans and other securities they were
not able to sell to investors.
5. Market sell-off is complicated because U.S. market has not yet
decoupled from other international markets, and because we exported many of
these pools of securities to other parts of the world and they too are
having to reconcile their overstated values.
6. Market sell-off further exascerbated by the lack of daily trading
volume that exists among individual securities in many foreign and
emerging markets that make it difficult for large holders to liquidate in an
orderly fashion and uncertainty surrounding systemic risk in the
banking sector.
6(b): International mutual fund and ETFs fund flows have outpaced US
based investment flows for the past 2 years and this will be unwound,
creating additional selling pressure in foreign markets.
7. This actually is a GOOD thing, in that instead of having a drawn out
march toward bear market, by this morning we will have seen 20%
corrections in 38+ market indices around the world including Hong Kong,
Japan, Australia, Russia, India, China, and Brazil, with Europe and U.S.
close behind
8. Valuations have become extremely compelling, here and abroad. In the
current panic, forced liquidations are creating tremendous value in
stocks.
9. Ongoing economic growth in many international markets and even in
the U.S. is not overly compromised over the mid to long term time
horizon. I liken the current action to eating spoiled fish, you feel like you
are about to die, but after you vomit for a day you can recover pretty
quickly.
10. We are in the process of repricing all of the overstated asset
values and taking down high quality companies who remain fundamentally
leveraged to opportunities we have long recognized as multi-year if not
multi-decade secular growth opportunities. Our Value list is now on sale
and we are going shopping. - The falling knife is about to hit the floor
and everyone is going to stand around and stare at it for a spell.
Let's pick it up.
Our message is:
·We are in the midst of a correction. We are very near a
bottom.
·Assets are being repriced to discount economic and consumer
slowdown.
·Markets work in cycles we will continue to apply our tried
and true valuation work, as we have in the past, to own high quality
companies at firesale prices.
·The sell-off has been warranted but has run its course -
REMEMBER the data can continue to be weak but the STOCK MARKET IS A
DISCOUNTING MECHANISM AND HAS ALREADY DISCOUNTED SIGNIFICANT ONGOING WEAKNESS
IN CREDIT, CONSUMER and HOUSING MARKETS. I do not believe we are
heading into global recession and I believe this swift, and dramatic
sell-off actually increases the chance of global markets recovering more
quickly on sustainable footing.
·Investors must buy low and sell high, now is the time to
keep your head clear and remain focused on the longer term opportunities.
·With the recent correction, the price of stocks now broadly
overstates issues in the credit markets and understates tremendous
value in high quality companies with proven track records and open field in
front.
We will continue to discuss how to preserve capital in what could be a
more lasting bear market but we will not be pursuing a cash raising
strategy here. The bottom has already fallen out, its too late to jump
now. We will be adding or swapping into our best ideas now, and
potentially raising cash or becoming more defensive over the coming days or weeks
as we retrace some of these losses. But now is clearly not the time to
bail out of the market.
