Chris Lau - Seeking Alpha

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Thursday, February 19, 2009

Market Bottom? Ask the Questions

3 Questions:

Answers can be given, but the real answers lie in asking the right questions.

1. Do you honestly believe the capital system will be allowed by our leaders to collapse?

The de-leveraging of loans/bank assets for Eastern Europe have not yet been priced into the shares of Western European Banks. It is known that European banks are under worse strains than American banks.

Investors must ask the question: will leaders allow the global capital banking system to simply collapse because banks in aggregate are essentially insolvent? While I maintain 1 or 2 U.S. banks will be nationalized, I would not bet against the Fed.

Does following a billionaire count for anything? Warren Buffett maintained his holdings on 290.2 million shares of Wells Fargo & Co (its value declined 22 percent in the quarter to $8.55 billion), 151.6 million in American Express Co (its value fell 48 percent to $2.81 billion. Berkshire's stake in U.S. Bancorp fell 7 percent to 67.6 million shares. (Source: Bloomberg.com) In addition, Buffett's company acted as banker to Harley Davidson, GE, and Goldman Sachs. These are tremendous losses. It's a paper loss, but at some time in the future, banks will recover.

2. What about a 4 Day work week (more life but reduced pay) to reduce the excess "human capital" resource?

Europeans enjoy life more so than North Americans. Life is defined by leisure, family, and free time. North Americans are more focused on climbing the ladder. If that ladder has reached a ceiling (for now), what would happen if more companies adapted a 4-day work week? Fewer layoffs would mean fewer foreclosures. People who had more free time would be inclined to go out more and to spend (not excessively but savings would not climb to a projected 9% in the U.S. by the second half of this year).

3. Can you really believe "This recession will last 3 years?" If the economy cannot be forecast for 6 months, how can anyone dare predict 3 years into the future?

If blue-chip corporations dare not forecast the economy for the next six months, then why would anyone listen to the "experts?"

Readers of Nassim Nicholas Taleb's "The Black Swan" would appreciate that anyone declaring themselves as experts are anything but. The same applies for "forecasters."

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