How low can we go?
Financial stocks are reeling. The World Bank estimates that mortgage losses will top $1 Trillion. Someone called The Bridgewater Group predicts that there will be $1.6 Trillion in losses during this downturn. If you talk to a prediction market guru, he’ll note that the global financial stocks have declined $3.3 Trillion since the credit crisis began. What should we think?
Everything hinges on the creditworthiness of the US economy, and the housing market is at ground zero. We don’t have much good data on this yet. What we do know is mixed, but if housing stabilizes, the prophets of doom will look pretty foolish.
People are inveterate trend-followers. 1990s predictions of Dow 36,000 were followed by 2002’s call for Dow 5,000. Neither forecast was accurate. Lately, the trend has been down. So the doomsayers are crowing. The key to profiting during hard times is to buy the stocks and bonds of solid operating companies at reasonable prices. With the latest gloom, many such assets are available.
Douglas R. Tengdin, CFA
Chief Investment Officer
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