Sep 16, 2008

Stock Market Predictions

So what is really going to happen in the stock market? (not only in the US markets, but also world over?). I have an answer to that: I do not know. Neither does anybody else. Now that we have that out of the way, let us dissect available news and possible courses of action.

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Ma
ny people are already in panic mode after seeing Lehman Brothers fail (and file for Ch. 11 protection to reorganize) and Merrill Lynch bought out by Bank of America. Additionally we have the large insurance American Insurance Group, Ticker: AIG in deep trouble as we speak. We also hear several other companies like MF Global comment that their exposure to LEH was minimal, in order to bolster confidence. But we all know how the mob mentality works right? Investors enmasse pulling their money out of the stock market, does little to help stock price. Pictorially, the story of LEH, as of now is this in the last few days:

Click on image for full size chart
Once they went below 14, it was pretty much a free fall. A lot of things in the stock market work based on perception, so if a collective group of people "perceive" something to becoming valuable in the future, they bid up the prices on those "it" stocks. When they think that stocks are going to go, a few big names start selling and then everyone (almost) scrambles for the exits. Take for instance, AIG. I had long felt that they would run into trouble, but I had not articulated that anywhere except in my paper virtual portfolio. Now, after it became well known to even somebody living in Solomon islands that AIG has big troubles, the three ratings agencies decide to downgrade AIG.
American International Group Inc., the world's largest insurer, was hit by a wave of downgrades by credit-rating agencies worried that the deteriorating housing market is further undermining the company's battered finances.
Read all about that here.
Thank you Credit Agencies, you have been doing your job really well in the last few years! Do I hear the barn door being closed now, or wait, should I use the analogy that bad credit is bad credit, you can put lipstick on it but... No, no, no - I am not going to go that route or the other route. To be fair, I am not really bashing rating agencies Fitch , S&P etc, I am just making fun of their delayed reiterations of news that is already out in the open market.

So where does all this leave us. Well it goes back to the old wisdom of being diversified, keeping emergency cash as cash, and having a positive outlook on life, no matter what. I am not sure, if the musical Annie is part of that wisdom, but hey I thought it is cool. I am not giving any tips for stocks here, but some of my favorites are DUK, GE, UTX, ABB, SUN, BMY, ISIS. Several of them are risky, so do your due diligence.

Sorry for run-on sentences and any other grammatical errors.
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