The Financial crisis: Toxic Assets or Bargains?
The Stress Test results from Banks yesterday proved one thing to me, these toxic assets may not really be as bad as everyone has claimed they are. How else could the Banks pass the Stress Tests yesterday for the most part. It wouldn't make sense unless these tests were a farce. I just can't believe that the best minds devised a test that was meaningless. Could it have been flawed for our benefit? Positively, it could have been. But with the whole world watching, I doubt it.
That means that the recent purchases of foreclosed homes by bargain hunters may have staved off a more precipitous drop in housing prices. The additional benefits from the Treasury and Fed coordination of the lowest interest rates in years have given some the bargain of their lifetime.
I have been wondering why the stock market hasn't been beaten up even more than it had. And I was also wondering why it has gained so much recently and why does this crisis not resemble the 1930's stock market crash. Well, like it or not, I believe we are moving at a pace so much faster than those of the 1929 Stock market crash and the following years of the Great Depression. In my view it is all because of Technology and the Internet. Communications happens now 24/7 where back then many didn't realize what had happened until it was affecting them directly or their neighbors. I am reminded for the rapidity of information regarding our recent scare over the Swine Flu. But the messages by the media to cover your mouth when you cough, to wash your hands throughly, may have helped ease this illness in ways we can't imagine.
With instant communications and the instant gratification this generation has come to expect, we all want to be over with this and move on with our lives. Yes many got very scared and drove to protect themselves financially, but many others are apparently over the crisis and as long as they are employed, they see enough signs to suggest they can get back to their old ways. Whether this bears out, only time will tell. One thing seems certain, these toxic assets appear to have been undervalued and since most of them are based upon real estate, there may be some terrific bargains out there. What attracts me to that idea is that real estate is a hard asset. And if we are on the path to recovery as many believe, then inflation must be around the corner from all the cash infused to save the banks and the financial system.
How has this affected my thinking about the stock market? Well we should be able to see very soon whether we are going to recover back to the Dow 10,000 and above by watching the 200 day Moving Average line. If we can get above the 200 day Moving average on Indexes like the Dow, S&P 500 and the Nasdaq Composite Index, we may recover much more quickly than many are expecting. The 200 Day Moving average on the Dow, crosses the axis at exactly 9,000 today. It crosses the S&P 500 at 957 and it crosses the Nasdaq Composite Index at 1740. We have been over the 200 day MA on the nasdaq the past 2 out of 3 days. The Dow bear market that started on September 3rd, 1929. didn't make it back to its highs until 1954!! The Dow closed yesterday at 8,409 and the S&P 500 closed at 907.
I have a hunch that this time it will be much quicker. We may look back at this time in 10 years and wonder why we acted either so afraid we missed a once in a life time opportunity or were so confident we took advantage of this situation. To me this infers you must be nimble and question yourself and your actions daily, in the face of new information and ever changing circumstances.
UPDATE:
News just out: The unemployment rate just came out for April and it is now 8.9% nationally, up from 8.5% in March. I had expected 9.0% or over.
That means that the recent purchases of foreclosed homes by bargain hunters may have staved off a more precipitous drop in housing prices. The additional benefits from the Treasury and Fed coordination of the lowest interest rates in years have given some the bargain of their lifetime.
I have been wondering why the stock market hasn't been beaten up even more than it had. And I was also wondering why it has gained so much recently and why does this crisis not resemble the 1930's stock market crash. Well, like it or not, I believe we are moving at a pace so much faster than those of the 1929 Stock market crash and the following years of the Great Depression. In my view it is all because of Technology and the Internet. Communications happens now 24/7 where back then many didn't realize what had happened until it was affecting them directly or their neighbors. I am reminded for the rapidity of information regarding our recent scare over the Swine Flu. But the messages by the media to cover your mouth when you cough, to wash your hands throughly, may have helped ease this illness in ways we can't imagine.
With instant communications and the instant gratification this generation has come to expect, we all want to be over with this and move on with our lives. Yes many got very scared and drove to protect themselves financially, but many others are apparently over the crisis and as long as they are employed, they see enough signs to suggest they can get back to their old ways. Whether this bears out, only time will tell. One thing seems certain, these toxic assets appear to have been undervalued and since most of them are based upon real estate, there may be some terrific bargains out there. What attracts me to that idea is that real estate is a hard asset. And if we are on the path to recovery as many believe, then inflation must be around the corner from all the cash infused to save the banks and the financial system.
How has this affected my thinking about the stock market? Well we should be able to see very soon whether we are going to recover back to the Dow 10,000 and above by watching the 200 day Moving Average line. If we can get above the 200 day Moving average on Indexes like the Dow, S&P 500 and the Nasdaq Composite Index, we may recover much more quickly than many are expecting. The 200 Day Moving average on the Dow, crosses the axis at exactly 9,000 today. It crosses the S&P 500 at 957 and it crosses the Nasdaq Composite Index at 1740. We have been over the 200 day MA on the nasdaq the past 2 out of 3 days. The Dow bear market that started on September 3rd, 1929. didn't make it back to its highs until 1954!! The Dow closed yesterday at 8,409 and the S&P 500 closed at 907.
I have a hunch that this time it will be much quicker. We may look back at this time in 10 years and wonder why we acted either so afraid we missed a once in a life time opportunity or were so confident we took advantage of this situation. To me this infers you must be nimble and question yourself and your actions daily, in the face of new information and ever changing circumstances.
UPDATE:
News just out: The unemployment rate just came out for April and it is now 8.9% nationally, up from 8.5% in March. I had expected 9.0% or over.
Labels: 1929 Stock Market crash, 200 day Moving Average, Dow, missed opportunity, Nasdaq, SP500, unemployment rate for April
posted by Charles Amico at 5:10 AM
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