18 July 2008

Dysfunctional system discounted

We may be at a bottom for the present Dow-index bull market.

Keep the confetti in storage, please. I'm merely suggesting that the upward bounce this week [the chart alongside this text shows you yesterday's contribution] might not be a trap, just the Dow's tricky way of tempting you into renewed exposure. It might, rather, mean that a process of discounting the value of a (previously) overvalued system has run its course.

My theory, FWIW, is that much of this drop has been the consequence of a dysfunctional bankruptcy system.

People have become afraid of owning equity in finance corporations because those corporations so frequently and easily become the target of lawsuits by trustees or DiP on the slightest of pretexts -- consider the fall-out from Manhattan Investment Fund, or Refco, and the institutions that are targeted in such cases.

Anyway, the stock market swoon caused by such factors has reached its natural end. All the discounting that our dysfunctional bankruptcy system requires has been accomplished. So we've found a bottom of sorts.

BTW, nothing I say is to be understood as investment advice. This is a blog dammit! You're reading this for free and its worth every penny.

That said ... suppose I'm right. If the Dow has found its bottom, discounting everythig that needed to be discounted as a result of the revelations of last year ... does that automatically means we're going up now?

No. As the saying goes, if you throw a dead cat out of a skyscraper window, it will bounce a bit when it hits the sidewalk. That won't mean it's come back to life. We might simply be seeing the dead cat bounce after the discovery of a bottom. If there is no other animating force that enters the scene at this point, we could have a period of meaningless zig-zags around a horizontal line.

No comments:

Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.