Friday, April 4, 2008
Vulture Investors Swooping Down On Wall Street
Louise Story, New York Times, tells a good story. The time to buy is when blood is running in the streets. Now, as red ink runs on Wall Street, the figurative heirs of the Rothschilds — bankers, traders, hedge fund gurus and takeover artists — are plotting to profit from today’s financial upheaval. These market opportunists — vulture investors is the Wall Street term — have begun to swoop. They are buying up mortgages of hard-pressed homeowners, the bank loans of cash-short businesses, and companies that seem to be hurtling toward bankruptcy. And they are trying to buy them all on the cheap. One Wall Street specialist in so-called distressed debt recently spent at least $450 million for assets of Thornburg Mortgage, the battered mortgage servicing company. Others are buying beaten-down corporate bonds and looking at car and credit card loans.
I've written about the market bottoming out here. While the lowest point has already passed, the oppurtunity to profit still exists, at least until June. Except for housing (not due for a bottom until the end of 2009) and certain areas of the financial sector which deal with derivatives (not at all due for a bottom), the rest of the economy is set for an extended course correction upwards. Commodities, gold and oil especially, are in for some downward pressure. Oil should stabilize at about $95. The dollar is in for at least a few months of upward pressure, as the credit crisis eases, and inflationary pressure decreases. An 'interest rate raise' from the Fed would send the dollar booming, but don't hold your breath.
As far as the tech sector is concerned, the big boys are in serious trouble, and in for some corporate downsizing, with job cuts and maybe some spinoffs. As of now, these problems are being hidden by the overall crisis in the economy, but by June, Silicon valley will be under serious pressure to improve earnings or face another round of layoffs allaround. As it is, everyone from Dell to Google (Doubleclick) is cutting jobs, and small companies and startups can hardly find any good talent. I'd stay clear of tech at least for the next 6 months.
The biggest oppurtunities are in sectors which were already in, or due, for a takeoff, but the rally got postponed due to the credit crisis. This would include solar stocks which were already halfway into a bull run, retailers like Wal-Mart who will be getting a lion's share of the 130 million consumers with rebate checks in their hands, insurance companies fueled by boomer retirements, and the travel sector, which is expecting big changes due to the dollar's correction vis-a-vis the Asian & EU currencies.
Financials provide big oppurtunities, and equally big risks. Best bet would be the muni market, which is basically sound but just got caught up in the ratings scams. State, City and municipality bonds are the safest things you could be holding, and they've just priced down because they had some bad company in the form of MBS. Once the insurers, the County boards and the State regulatory bodies sit down and hammer out some kind of understanding, you'll find munis rising dramatically. Which is why Warren Buffett stepped into this arena. Very little risk, and lots of gain, and the market is wide open.
I've written about the market bottoming out here. While the lowest point has already passed, the oppurtunity to profit still exists, at least until June. Except for housing (not due for a bottom until the end of 2009) and certain areas of the financial sector which deal with derivatives (not at all due for a bottom), the rest of the economy is set for an extended course correction upwards. Commodities, gold and oil especially, are in for some downward pressure. Oil should stabilize at about $95. The dollar is in for at least a few months of upward pressure, as the credit crisis eases, and inflationary pressure decreases. An 'interest rate raise' from the Fed would send the dollar booming, but don't hold your breath.
As far as the tech sector is concerned, the big boys are in serious trouble, and in for some corporate downsizing, with job cuts and maybe some spinoffs. As of now, these problems are being hidden by the overall crisis in the economy, but by June, Silicon valley will be under serious pressure to improve earnings or face another round of layoffs allaround. As it is, everyone from Dell to Google (Doubleclick) is cutting jobs, and small companies and startups can hardly find any good talent. I'd stay clear of tech at least for the next 6 months.
The biggest oppurtunities are in sectors which were already in, or due, for a takeoff, but the rally got postponed due to the credit crisis. This would include solar stocks which were already halfway into a bull run, retailers like Wal-Mart who will be getting a lion's share of the 130 million consumers with rebate checks in their hands, insurance companies fueled by boomer retirements, and the travel sector, which is expecting big changes due to the dollar's correction vis-a-vis the Asian & EU currencies.
Financials provide big oppurtunities, and equally big risks. Best bet would be the muni market, which is basically sound but just got caught up in the ratings scams. State, City and municipality bonds are the safest things you could be holding, and they've just priced down because they had some bad company in the form of MBS. Once the insurers, the County boards and the State regulatory bodies sit down and hammer out some kind of understanding, you'll find munis rising dramatically. Which is why Warren Buffett stepped into this arena. Very little risk, and lots of gain, and the market is wide open.
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