Red, Like you, I have been gone since June 2007 (compared to your April 2007), and the US, since March 2007. I have since preferred to concentrate on my businesses instead.
My super has been in cash since early July 2007, and presently, I still have no intentions of re-entering.
I had been waiting for 4 events to unfold (arguably, in line with the capitulation theory): 1) oil to drop to $90 (on NYMEX yesterday, it got to within $91.15); 2) The DOW to drop to 10000, but could well overshoot to 9500 (today, it came to within 10,609); 3) the NASDAQ to drop below 2000, but could well overshoot to 1800 (today, it closed at 2098); 4) the ASX, to close below 4000 (presently, it is near 4590, having earlier neared 4550).
Across the board, the markets are nearing these points. They are my opinion only, supported not by technical analysis, but by time spent in the markets, following events closely and analysing fundamentals according to my own approach.
Presently, however, there is a clear wave of irrationality out there.
People suggesting that the NAB is going to fail are way off the mark when considering that the NAB prefers secured lending to a much higher average level than any of the other banks.
Consider, for instance, ANZ's still unresolved exposure to Centro for $1.25B of which >$870M is unsecured.
The same can be repeated in any number of stressed major companies out there. Look closely at who their bankers /syndicates are, and this will give you some idea of where the risks truly lie.
In a $600M multi-option corporate facility towards BBC, there were 4 lead banks (NAB, CBA, ANZ and ANZ/NZ.
And, so it goes on.
The CBA is heavily exposed to residential and commercial property which despite its resilience, is showing signs of individual stress - witness, for instance the tragic problems currently being faced in Cranbourne.
The ANZ pushed like all anything to grow a business portfolio which took it into the riskier end of the market (along with Merrill Lynch) - OPES amongst others. With many of its corporate /property forays, the ANZ actually went in either unsecured, or secured 2nd or 3rd in line.
SGB is heavily exposed for its shortened entries into business and corporate, particularly towards Centro ($458M claimed as secured, but with some refinancing due by month's end), MFS (Octaviar, since lost), amongst others.
WBC has the weakest of all business /corporate lending, and has been chasing market share for years.
Looking out there on the wider market, when you hear the following as the stories of the last few hours, you know then that caution (and rationality) has been thrown to the wind. Gordon Gekko exhibited all of the extremes of irrational exuberance. Today's markets are showing all the signs of irrational deliverance. That's why, stepping aside, being cautious as opposed to being pressured, seems (at least for me) the best way to remain. I am under no pressure to invest, or return to the markets. However, I will soon start doing my calculations and analysis on the basis of current and future likely behaviour (modelled for the economic changes that have occurred), as opposed to basing everything on purely historical precedent.
So, for the stories of the last few hours, consider these: 1) Constellation Energy Group in talks with buyers /partners; 2) Washington Mutual up for auction; 3) Morgan Stanley and Wachovia Securities in talks (initiated late Wednesday by Wachovia); 4) HBOS being sold to TBS Lloyds; and so it goes on.
Earlier in the week, we had Merrill Lynch going to BoA, Lehman Bros filing for protection, AIG all but acquired by the Feds, and the final details of Fannie Mae and Freddie Mac being worked out.
The appetite for risk, therefore, seems to be nearing its natural life and the foray into split business structures (deposit taking banks, separate to investment banks seem to be nearing the end).
After all, who did Morgan Stanley split from in 1935?
Answer: JP Morgan, following enactment of the Glass-Steagall Act which prohibited investment banking being colleased with retail banking.
Much of the work tracking back to the New Deal has now reached its maturity, with a new set of structures now emerging for taking the economy and global finance forward.
For that, the foundations now being established will clearly underpin the markets of the future. And, added to this, new rules now emerging from the SEC (and elsewhere) to control short selling (which, after all, is nothing but a tactical, ambush designed to scrae businesses into capitulation).
