Timing the market has always been a tremendous challenge and it might be me but it feels like it’s as difficult right now as it has ever been. You can easily draw up some very frightening pictures that would make you want to prepare for the next apocalypse but also some very optimistic ones. The problem with trying to invest in this market is that uncertainty could remain high for a long time.
Buffett Picks A Side
It’s not a big surprise as Warren Buffett has been very vocal in his belief that the US economy will rebound in a strong way. Berkshire Hathaway actually bought nearly $7 billion worth of stocks in the last quarter according to the most recent SEC filings. Buffett has not been perfect but he has rarely missed on such big bets so it might be dangerous to assume that all is going to hell. Of course, it looks like Buffett has already done well if he did indeed start buying shortly after US downgrade as stocks have rebounded significantly since then. Knowing Buffett though, he was not buying with a 2-3 month horizon so it probably just looked like a good time to get back into the market. I know that we always hear it’s a great time to get in when everyone is afraid and that seems to be exactly what he ended up doing.
The Scary Scenario
These days, Europe seems to be front and center and while a Greek bankruptcy is scary, the impact is limited if it can be contained. And that is exactly the problem. Just take a look at the 10 year bond .
That gives you an idea of how much more debt interest Italy needs to pay. For an already weakened economy, that is making things very tricky. It’s one thing to have Europe group together to save Greece, a country with 10 million people. Italy, one of the biggest economies in the world would likely be beyond rescue. Therefore, the big question is: How can Italy and Europe convince investors that Italy is a safe bet, that it will be able to fulfill its obligations 10 or even 20 years down the road? It’s not clear. One fact that has been gaining traction is that gold reserves by some of these large European countries are being involved and that certainly increases the possibility of seeing major rises in the price of gold if things do turn sour.
At this point, everyone seems to concede that Europe is back in a recession although most think it is mild. The big question remains if the US will also go back through a second recession in such a short period.
What Is Clear…
What is clear is that this extended period of uncertainty will claim its victims. All around the world, firms and individuals are making big bets on one of these events. Yesterday, I discussed the big bets that some of these companies such as Man Financial have been making and why they’re doing it. Chances are that many more will come (although hopefully they will be smaller ones).
No comments:
Post a Comment
Note: only a member of this blog may post a comment.