OleDrippy (42.55)

Ebb and Flow

February 04, 2009 – Comments (0) | RELATED TICKERS: SPY , PFF , BND

Let us start with the assumption that the world is not going to end. We have to assume that lest we convert all our cash to silver, guns, and canned goods. I know there is an argument that "THE END IS NEAR", but for the sake of this entry, let's assume that the global capital markets will not go to zero.

 What now, then, Brown Cow?

IMHO, I feel that we are simply in a cycle of risk. We happened to throw away any concerns of liquidity and credit risk in the recent past and we got burned. Officially, the global appetite for risk is now WAAAYY on the left (cash, anyone?). So, it can be summized that to pry ourselves out of the fetal position will take awhile. Our acsent up the risk ladder WILL happen again, but it will take some time.

Cash, you say? That train has left. Obviously, we all need to set aside emergency funds, blah, blah, blah, but you know that. What is going to happen is people are going to tip-toe into GO munis, then revenue munis (ex-california, of course), then investment grade corporates, then preferreds, then high-yield, THEN you will see money of any volume start entering the equity markets. This could take awhile folks. We got burned, and we got burned bad. It is possible that a generation of investors (namely the baby boomers) has been scared away from the stock market FOREVER. Unfortunately, the baby boomers hold a heck of a lot of this country's wealth.

Spreads on munis and corporates are at levels rarely seen as compared to treasuries. Start there and slide into equities at some point in the futue. If you do invest in stocks, I'd be sure I am getting PAID while waiting for capital gains that may not happen for some time.

Good luck!