Vancouver Investment Advisor Ritch Wigham

Three questions about the market answered

Turning to the market in general:

The fundamental questions on everyone’s mind are:

• When is the bottom??
• When will it be safe to enter??
• How will I know??

1.The bottom of a market is different every time. Why? Well because the cause of the decline is different each time. Regardless of what you hear, capitalism rarely makes the same mistakes twice in the same form. The results may be the same but the causes are different. Consequently the bottom is different each time because we have to fix the problem that created the issue. The ultimate cause of this debacle is the production of reams of leveraged paper that no one knows how to value. It does (believe it or not ) have some value. Since most of this “paper” was printed to cover mortgages that were leveraged to the hilt (maybe up 30+ times their face) (this is long and complicated so please refer to the post on Mr. Li and the CDO’s on this site) the first thing to do is to find the bottom in the institutions that wrote this paper. And that would be the American financial system.

So the answer to the first question of when the American financials have bottomed is: I think they have. Are there more surprises? Probably, but most if not all are priced in the market already.

2.It is already relatively safe to start entering some sectors. Virtually everything is trading at values not seen since the early 90′s and some are worse than that. As you may be aware from my previous posts I am very impressed with the suppliers of all commodities with their willingness to curtail production as they never have in the past. Whether it is oil or potash or copper or even nickel nowhere has the supply of these commodities increased over the last cycle. When the economies of the world start to recover all commodities will be in a tighter supply demand balance than they have ever been in. No new discoveries means no new supply. Obviously some sectors will recover quicker than others, but as Dennis Gartman says; ” I want to be long on things that hurt, when I drop them on my foot!!”

3.You won’t know for sure ‘till it is too late to have caught the bottom if you aren’t already long of what has bottomed. True bottoms are “HINDSIGHT” but with a little bit of “FORESIGHT” we can do very well by being involved with certain sectors now. Once again, unless you are of the Armageddon mindset the economies of the world will get through this and everyday forward is another day closer to recovery.

Conclusion:

This one is easy. I believe that the American financial system has bottomed. It may not recover (go-up) for a while, but the worst is behind it. A final confirmation for me will be when Mr.Geithner speaks and the financials do not decline. It is absolutely the time to start being involved with what will recover first. It is definitely time to be looking forward not on dwelling on what has happened. Let the book writers parse the cause and effect, by the time it is in print it is past its due date.

Yours,
Ritch

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