Thursday, May 31, 2007

This is News??

I am currently very busy with a couple of projects, so my posts are necessarily short.

This morning I was struck by the headline of an article appearing on the NY Times: "Chinese Stocks Fall For 2nd Straight Day". The article's content is not as important as the message conveyed by the choice of title: a two day drop in Chinese stocks is major news! This is how far the stock mania has reached, that consecutive new highs are the expected norm and "corrections" are newsworthy aberrations?

Naturally, US markets reacted with a new all time high. Why? Because speculators have now "learned" from the previous Chinese episode in February-March that all is OK and that they should "buy on dips." Is so much conviction a sign of a healthy market? Or is it a delusion?

As the steamboat card sharpies accurately said, "you pays your money, you takes your chances." It is just that the odds are getting shorter these days , as current and former market regulators and central bankers all over the world are constantly reminding us. Except in the US, of course, where Greenspan is - once again - publicly ignored (and privately ridiculed) for his current version of "irrational exuberance" warnings. The rest are force-feeding the goose in the hopes it lays a clutch of golden eggs in the form of broad hoi polloi market participation, before it gets slaughtered and its liver becomes pate.

I, however, believe that il popolo at large has no extra money to invest (e.g. negative saving rate) and at best is simply buying on margin (new all time record in NYSE margin in April, $318 billion).

The real action is coming from leveraged hedgies plus foreigners re-investing the money gained from selling fluffy toys and flat screens to American consumers. In other words, the party is going on with very few party-goers in the nightclub, who have turned up the music volume to attract the passers-by. The role of Street "barker" has been given to the private equity funds..."Hey, hey, checkit out, checkit out .. 18.6 billion for this one, 32 billion for the other, how about this beauty, eh? Gotta be worth at least a fiddy, whaddaya say? C'mon, lotsa bootiful opportunities inside..."

Looks to me like they are putting lipstick on a whole lot of geese these days. But, hey, what do I know? Ask Hank.

1 comment:

  1. Hi Hellacious,

    "The party is going on with very few party-goers in the nightclub, who have turned up the music volume to attract the passers-by."

    A lot of us here are getting highly skepticals about current valuations for about nearly any piece of investment for sale.

    Private deals are the display of money is most impressive. The Chrysler private deal looks like one of the most superb way of of dumping one's money fast.

    I just plain wonder why noone is even challenging it! Private money to secure this company at this very moment. It looks like the optimal way to hell.

    I have a few relatives and friends in the reasonably successful European car industry. They say 2007 is a full wartime situation with everyone in battle dress struggling for survival.

    These pretty robust companies will have tough times in spite of their strong positions. The game is played wordwide like a go game party. They do not expect to make any significant money in the coming years.

    Just plainly moving ahead. Even in the supposedly great markets where they operate, they are quite modest. How does the US-consumer-dependant Chrysler fit there?

    What are the Chrysler investors betting upon? A massive drop of the dollar value? A more cost-effective way to severe part of their local financial duties and commitments... You can expect both.

    Will that be enough to secure the Cerberus deal? "New Economy" stuff à la sauce 2007?