I think it is too late now, it should have be done 12 months ago. In the markets you have to see things in advance, while everybody convinced they understand the problem it is usually the end of it. But who knows...
Policy Power A coordinated round of policy measures aimed at short-circuiting the liquidity squeeze has resulted in a sharp rally. Taken together, the measures are likely to be a crucial development by helping to alleviate counterparty risk fears that resulted in the collapse of the interbank markets and spikes in credit derivatives. Given that these financial stresses were related to the issue of banksâ âproblem assetsâ, a resolution bank would help to restore banksâ capital positions and to prevent the vicious cycle of disorderly de-leveraging of financial sector balance sheets. Normalised ERP justies 10% rally Earlier this week, the level of risk appetite had plunged, and the ERP had reached 3.75%-4% based on an assumption that profits are 0 to -5% next year. The level of risk aversion has a profound impact on where equities trade. A pull back to 3.5%, coupled with our core assumption that profits fall by 5% in 2009 (after 6% this year) justifies a 10% rally from the low and a âfair valueâ for the SXXP of 290, slightly above the middle of our 250 to 310 âfat and flatâ range. Back to Fat and Flat But we do not think that this marks the start of a sustained bull market. Uncertainties over the economic environment and the impact of bank de-leveraging on the pace of any recovery are likely to keep a cap on prices for a while yet. A fall back in profits to long-term trend since 1980 (a further fall of 20%) and a mean reversion of margins and ROE would push the market back down again by around 10% even with a 3.5% ERP. While we think such a profit outcome is unlikely, further profit erosion into next year and an uncertain pace of recovery are likely to keep markets within the âfat and flatâ range until the middle of 2009 in our view.
Sept. 29 (Bloomberg) -- U.S. stocks lost $1.1 trillion in market value, oil plunged and Treasury bonds rallied after lawmakers rejected the Bush administration's $700 billion financial rescue. 1.1 trillion : 700 bn
Monthly still very bearish, question is - will bailout, if materialises of course, negate this bearishness or will we still need to see more discount? I reckon bull will return only when there is a new plan in place, not some short-term bailout schedule, but a total revamp. In the end of the day proper longer term cycles seem to coincide with major news that lead to a change of a longer term trend. Now we are still within the credit crunch "era", basically I doubt that expected bailout will be the beginning of a new "era", so 4000 still stands ImPO
curious as to how you hedge your dax futures positions. would you mind giving an example? fyi: i trade the dax every day and often would like an overnight hold, but i haven't come up with a way to hedge that doesn't negate my upside. i am a US based trader. thanks.
Dynamic hedging strategies : Wharton, by Simon Benninga and Zvi Wiener http://finance.wharton.upenn.edu/~benninga/mma/MiER71.pdf
On Friday we published a piece called 'Recession - Now Priced as the Central Scenario' showing how the market was now discounting a 30% fall in profits next year based on a 4% ERP. Following the European Government initiatives that evolved over the weekend, we published the attached Strategy Matters looking at 10 reasons why the markets should enjoy a strong rally, although not yet a sustained bull market. We have also upgraded our weighting on the banks sector to neutral having been underweight for more than a year. The main points are: Markets are unlikely to see a decisive transition to a new bull market until mid-2009, in our view. Valuations are attractive, implying a 30% fall in earnings in 2009, but that alone may not be enough; an inflection point in economic activity remains too far away. That said, many indicators point to a strong rally in equities. We give 10 reasons why we believe the market should now bounce: 1) Bear bounce Bear markets do not tend to move in a straight line. Indeed, since July 2007, the DJ Stoxx has fallen over 40% but there have been seven rallies of at least 5%. Two of those rallies saw the market bounce roughly 8% and another two between 10% and 15%. 2) Risk aversion and valuation at extremes Our risk indicator which is made up of 11 'risk factors' is back to 2002 levels. Valuations have reached levels which imply a 30% fall in profits in 2009, even applying an historically high 4% risk premia assumption. 3) Recession obsession A barrage of recent indicators show that most of the Developed World is stagnating or in recession. Most of these indicators are at levels that are normally consistent with a recovery in risky assets relative to bonds. 4) Aggressive interventions Central banks and governments are getting more aggressive and ever more proactive in targeting the banks and money markets. Many of the recent steps taken are, we feel, very constructive and should contribute to a market rally. We have upgraded the bank sector to a neutral, having been underweight for over a year.