Tuesday, November 27, 2007

the wizards of wall street and their black boxes

November 27,2007


The continued down draft in the market makes me wonder if it’s not something else other than recession fears, the market action is looking more “9/11” than it is recession. My guess is keep on the look out for some kind or a major blow to the financial system.

The stock market is a market of extremes, we go from very over bought to very over sold, but when it comes to financials and a crisis in confidence in the banking system the extremes are even more extreme. So look for 12600 to 12500 for the DOWJONES on the down side.

Like Portfolio insurance before the sub-prime crisis is manufactured by the wizards of wall street and their black boxes. Unfortunately no black box despite vast amounts of human hubris contains all possibilities. Couple this fallacy with government appointed bureaucrats who are more political appointees than market experts and a congress that wouldn’t know a balance sheet from a racing form and you have a crisis in the making. So you say why now people have been warning about GSE’s for so long and nothing has happened? Perhaps the super hot real estate ie.. mortgage market of the early part of this decade put us over the top and created events that even the most water tight “black box” sprung a leak or perhaps its just a confluence of many factors that are creating a “perfect storm” environment.

My view is simple: there is no recession nor is one coming, the consumer will not slow as long as jobs are plentiful and interest rates and inflation remain low .Only a financial calamity will put us over the top and wreck this economy. However the wizards and their black boxes may have really made a mess of banking confidence for some time to come and that could spill over into the economy as a whole by seizing up credit markets. For those with strong wills and cold hearts this could present some of the best buying opportunities in financial stocks since the early 1990’s.

James J Foytlin

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