Rational Blog

In a prior life I worked in the credit markets and I have a very good understanding of various debt structures that have ultimately resulted in the current credit crisis. Some of the most intelligent people I have ever met worked in this space. These people are not just bright they are geniuses. Of course that genius does not equate to riches as we are now finding out, but these people are very smart and much of what I do as a Rational Investor includes following the credit markets for clues on direction and such. Without rehashing we now know that the credit markets were in complete disarray last week. We were truly staring at the abyss. If so, the stock market apparently had no clue. Instead of Rational selling, the stock market stood there like a deer in headlights. Forget the problems and solutions thereof for a minute. You need to understand that there is a huge disconnect between stock and credit expectations over the future. Such a state is very disconcerting to me. Going further I cannot see how we avoid a recession given the expense of cleaning up the mess. That means future profits will be lower than currently expected. In addition we don't even know if this solution will even do the job. I am not one prone to panic, but I can see the writing on the wall. I do not foresee a crash in the market, but I do think valuations must go lower before we recover from this malaise. I'm raising cash immediately. With this post I am liquidating 100% of my financial services etf, alternative energy etf, and broker/dealer etf. I will also sell 50% of my construction etf, retail etf, regional bank etf, technology etf, and transportation etf. The game has changed in my opinion. As a result the timing for the next bull market will be delayed by at least 3 months and possibly more.

Jamie Dlugosch
The Rational Investor

Comments: View Comments |  Tuesday September 23, 2008