Investment Market Outlook

The last few weeks have finally shown the world that volatility still exists and will suprise even the most sophisticated Hedge Fund Managers. What most people don't understand, is that the market looks forward about 6-8 months. This initital decline over the last few weeks is most likely an indication of things to come (mainly that China is overvalued and will not continue to grow it's GDP the way it has). I also believe that people are worried about our low savings rate, high debt, unbalance budget and that a decline in Housing Values will crimp the consumer. That means less electronics and clothing that is imported from overseas thus slowing the world economy. What has interested me for the last four months is the spike in premiums with the credit default swaps. Investors now believe the probability of a major financial institution collapse has grown. I think we have had 6 Subprime Lender bankruptcies in the last two months. It always begins in a far flug market, the subprime mortgage market this time and Malaysia in 97. Like Mr. Buffett says, expect what is unexpected and you shouldn't loose you shorts. Perception is the key to the market (albeit the manipulation being done by the large players of moving prices to make a quick buck) that will drive the price of all free markets. Riskier Assets will now be out of vogue as people shift to higher quality assets and Indexing becomes less advantages. I am not a dume and gloom investor but rather pointing out the negatives.

On the other hand, corporate profits are at new records and productivity seems to defy odds. The S&P's P/E is still trading under 20 and cashflow is at an all time high. I think stock picking is very important at this time and Munipal Bonds offer the greatest value for the yield. For the most part, our economy is in a great position but risks still might arise. In fact, there might even be some investment value's in the Real Estate sector when this all unfolds.