hard to figure it all out when everything kept moving so fast. I do remember one bold claim he made, though... I think we’re really close to, if not at, the bottom for the financial services industry. There are many opportunities in the most battered sectors. That same day, news service Reuters reported his fund was down 50% for the year... Yet, the S&P Financial Index would go on to fall another 80% from there.
Rather than drawing lines on charts like some of my colleagues who specialize in technical trading, I focus on economics and fundamental data. I’ve run more economic regressions than I care to count. But at that conference, I learned that numbers will never tell you everything you need to know. The market has a certain feel to it. You can only pick it up by talking to investors, hearing hedge-fund managers speak off-the-cuff, and listening to candid conversations that aren’t supposed to leave the room. In November 2007, an uncomfortable, grim humor filled the room. The people in the room stood to lose billions in investor money, and many would lose their jobs. Even so, they weren’t panicked. They joked and laughed. They assumed the other guys’ portfolios would fall apart, but not theirs. When a presenter pitched a long stock idea, he’d finish up with a winking disclaimer like, “That is, if you’re brave enough to buy any stocks right now.” Other speakers made similar jokes: “This is a buy... if there even is a financial sector tomorrow.” The crowd reacted with nervous laughter. What I realized later was that in the depths of a real crash, nobody is cracking jokes... It’s pure fear. Had the speakers sensed that, they could have avoided some disastrous calls. I remember hearing a presentation from Tom Brown, who runs a website called Bankstocks.com and a hedge fund focused on bank stocks. He basically threw up his hands and admitted it’s
What I realized later was that in the depths of a real crash, nobody is cracking jokes... It’s pure fear.
Portfolio manager Richard Pzena of Pzena Investment Management gave a talk claiming that Freddie Mac was the cheapest stock he had ever seen... After that, Freddie shares went from $35 to around $1, and nearly brought down Pzena’s investment firm in the process. Today, everybody wants to be the person who calls the market top... But that will happen once we reach a frenzied euphoria – the “Melt Up.” Only then will the market roll over. But I don’t see that happening just yet. Investors are still scarred from the financial crisis. This has been the most hated bull market in history. One way to quantify this is to turn it into a single number we can watch.
American Consequences 31
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