All the Way Baby!

One of the things I noted early in my career, at the time with a large natural resources company, was that graphs tended to go in one direction. If the market was poor it was forecast to go down continually, if it was good it went to heaven. Being optimists with billion dollar investments, when it was beginning to turn down, it was forecast to bounce back shortly.

Investment professionals are no different. There is a habit of expectations based on the extrapolation of the short term past. The fact that those extrapolations are at odds with historical relationships often is dismissed.

Over the past thirteen years, the S&P 500 has underperformed Treasury bills. "Investors" ignored valuations in the late 90's and let them again rise to unsustainable levels in 2004-2007. Unfortunately we are again at a high valuation.

As the accounting standards has gotten more stringent, we should begin to see with greater clarity the true state of corporate affairs in the banking sector. This greater clarity should make investment decisions more rational.

Stay tuned the next couple months are critical although I expect policymakers to continue to kick the can down the road to avoid dealing with the issues.

John Barnyak