Monday, October 13, 2008

We're Going to Need a Bigger Boat

I admit, I've been a little busy the past two weeks or maybe like the entire investment industry stunned by the speed and violence of the market collapse. Last week as each day brought another stunning loss in the market it reminded me of a shark attack. Shark victims often report feeling nothing but the hit, no pain. The shear historical magnitude of the past month takes on on almost academic amazement to the point you hardly notice you are being devoured.

It became increasingly clear that no one with policy power had any control or any idea of what to do. We watched as credit markets froze. Traders used to making hundreds of billion dollar trades a day reported they had made none in three weeks. Companies limped along with diminished funding options and anecdotal stories of canceled investments and diminishing economic activity spread.

Everyone searched for data that went back one hundred years rather then just twenty. Depression? Japanlike twenty year zombielike economy? I doubt either to be the case, but it takes some nerve to watch markets take entire bear market hits in a week.

Have we seen the bottom? Possibly, but there is a lot of work to do even in a well diversified portfolio. The carefully constructed non-correlated portfolio discovered in a deleveraging world, everything is correlated. Corporate Bonds, Stocks, foreign and domestic, commodities, real estate.

Open the belly of this beast and you'll find it ate just about anything.

John Barnyak