Thanks.
Valuation on the market or any individual stock is really just a giant game of ‘agreement’. If I can convince you and everybody else of importance that the world is too hot and we need to reduce the global temperature by 2F, then we can create a model by which everybody else basically sees the daily thermostat as under or over the ‘average’. It only works if an overwhelming majority go for it.
But looking at a company like Goldman Sachs, which is the best of breed in the brokerage sector, is trading at an 8 PE and that is historically so low that it should be a STRONG BUY for anybody. But there are so many calculations at any given time necessary to figure out what the temperature of investors and (more importantly) investment fund managers are that overvalued or undervalued is something which only has meaning in the very near term.
Curiously, I could make a very good case that on a purely technical standpoint that the DOW has double bounced off a bottom of 12400 and we are due for another 1000 to 2000 points in gain from here by the end of the year. And while that even might be fundamentally true, it doesn’t take into account anything which will be happening in the real world which will have bearing on it. So, it might turn out that what we are looking at today is actually UNDERvalued by quite a bit considering that we’re seeing number like these at a time when we are also in a recession.
Smart investing is a constant and diligent process. The whole ‘buy and hold’ mantra is great as a bumper sticker but it’s not something actual investors believe. I’m just glad that we had Big Ben in there and not Greenspaz because we might have had a much worse outcome.
And one very good way to judge whether the Fed actions are successful or not is to see if the Dems immediately try to get major traction in attacking him. If they don’t attack, its a case of unquestioned success for the Fed or for Ben. The dems (like Chuckie Schumer today) try to make political gain out of anything possible and the fact that they haven’t figured out how to do it on the Bear Stearns fiasco means Ben knocked it out of the park.
Unfortunately, it's something the compliance department at my firm believes - and our rules virtually prohibit trading. So all I'm allowed to do is 'buy and hold' in this very dangerous market. ;)
There are two major risks right now, cascading defaults with highly leveraged derivatives and a run on the investment bank. GS is barely "best of breed" with leverage of 25 instead of 30. Their potential for a run is as good as anybody's, their cash would probably last a couple days like BSC.
DOW has double bounced off a bottom of 12400 and we are due for another 1000 to 2000 points in gain from here by the end of the year.
The second bottom was lower than the first, that tells me it wasn't the bottom. A bounce is possible, but not likely.