THE DOT - if this turns orange or red be alert

Friday, September 12, 2008

financials 1-2 year outlook

Financials might bottom out any time soon ( even I thought we might see a little rally in Sep. - although a sucker rally) but from a mid term view its clear to me XBD will half within 18 months with a roughly 60 target. First target though is 110 within 6 months where the overall market should bottom out for the current bigger wave down.

Excerpt from CNBC

Lunch With The World's Biggest Short Seller

Hedge fund manager Jim Chanos, who makes money betting that companies' stock prices will fall, said financial stocks have probably seen the worst and his fund has fewer short positions now than it did in the past.

Very simple indication that we did not is the VIX for a such a statement to be true we need a level 0f 35 at least. Its not only the losses they made with the mortgage related products but the looming losses in the pipeline for a further deteriorating global economy. We have a severe structural crisis in the financial system if the central banks take out their special facilities markets would brake down immediately - they are still in a komma. Going forward many of their regular incomes will be reduced substantially and stay like that e.g. M&A , Structured Finance, Private Equity , Prop. Trading other areas just are shrinking due to capital implosion like asset management wealth management hence earnings and valuations have to be lowered substantially mid-term even long-term.

I just heard the long term fair house price valuation is 3.5 times the median US household income and in order to reach that price levels have to fall another 5-7 %. As experience and common sense shows the pendulum will over swing before stoping at the equilibrium. That means we even have to drop further since bubbles always end with a firesale and one indication for us will be the VIX at 35 that we are there.

That is a regular scenario situation and mark the lows for Q1 in 09 but at a later stage we will have to face a deeper reality that we are in a once a century or even bigger structural crises and that all that statistical truths might not help to find the 'true' value on a far lower level. like 60 XBD with an SPX at half value as well.

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