Fear and Greed

Fear has the upper hand. Everyone I talked to had horror stories. Even the bears were making up for lost money.

Even if you are a long term investor, it doesn’t mean standing still when you know you’re in the middle of a railroad track. Fed went from inflation fighting to panic attacks and if any good news now will be the consensus that the whole global financial system is in peril and central banks are willing to do something about it.

While I am not looking for a dramatic turnaround in the global economy, but in the next 18 months or possibly less, I am looking for a turnaround in the global markets. And for picks, I like energy, infrastructure, materials and utilities companies. It generates cash and I would be worrying less about when the bear market will finally end.

Bond market had been totally throttled, and when market is going to heck in a handcraft, people get bullish then and I see great bargains galore in select corporate bonds.

Market used to favour small cap stocks, but now prefers large-cap stocks for a simple reason that with large-cap stocks trading at huge discounts to the prices, you don’t need to take on the risk of a small-cap stock if you can buy a large-cap stock at a low price–to-value. 2008 is the second-worst year for the market in 183 years, second only to 1931. So when you see hedge funds and well-respected investors doing badly this year, this could be a sign the carnage is almost over and I open to possibility that markets will improve in 2009.

Credit market is now trading as if the S&P is at 800, implying another haircut of 13% while as the government bailouts will keep coming and that could have profound effect on the economy. General Motors may be a dead man walking, but dead men can keep walking as Frankenstein.

A contrary investor as I could tell you all the bearishness I was hearing is a possible sign that need closer monitoring from now, of a market bottom. May be that is true but until then, be careful out there and there might be an even bigger bear lurking around the corner in the next couple of months.