Dresdner Kleinwort’s global strategist gives his spin on the official Canadian Moutain Guide for when the bears are coming.
How to avoid an encounter in the first place
- Larger size groups are less likely to encounter bears - (so have a diversified portfolio)
- Make noise, to let the bears know you’re coming and give them time to get away - (don’t be complacent; assume a bear market might be just around the corner.)
- Watch for fresh signs, such as paw prints and droppings - (check the technicals)
- Keep your dogs on the leash at all times - (risk managers should keep a close watch on traders.)
- Use extra caution during berry season - (seasonality matters; the market is more vulnerable during the third quarter.)
There are two types of bear attack
- If you accidentally surprise a bear, it sees you as an immediate threat. This is a defensive attack so if the bear makes contact PLAY DEAD. Lie on your front with your legs spread so the bear cannot easily flip you over - (ie.anchor the portfolio by buying government bonds and defensives.)
- BUT - defensive attacks rarely last longer than two minutes. If it carries on any longer, it may have shifted to a predatory attack. In this case fight back!! (ie watch to see if an ordinary market correction - where you buy on the dips - is turning into a full blown bear market where you should seel the rallies.)
- If the bear behaviour is predatory - fight back. Try and climb into a tree, building or car. Do whatever it takes to let the bear know you are not about to give in. (i.e. once you have incurred 20 per cent losses - sell everything, buy puts, buy vol. And rather than climb up a tree, hide under your desk till the bear market is over.)
The Bear Stearns hedge funds are not an isolated LTCM-type trade that has gone wrong, says Edwards.
These “financial weapons of mass destruction” are widely owned. And the housingmarket is still sinking…
Just remember, he adds, that we are approaching the 10th anniversary of the start of the Asian crisis, ushered in by a preditable event (the break of the Thai baht dollar peg). One of his favourite books, Thailand’s Economic Miracle: Stable Adjustment and Sustainable Growth, empahasies the hubris at the time.
Investors\’ failure to countenance the abyss the global economy is teetering above, fills me with total bemusement…The consensus will continue to believe that the US consumer will not go into recession. The logic is the same as the logic with the Asian crisis.
He goes on:
Two things stand out in my mind as obvious. First - there is sub-prime mortgage crisis in the US. There is a mortgage crisis, period. It is most observable at the sub-prime level but the putrid stench from the rush to profit from looser lending standard THROUGHOUT the entire mortgage spectrum is clearly evident.
His conclusion:
Warren Buffet said: “Only when the tide goes out do you discover who\’s been swimming naked.” As the US housing tide recedes, the skinny-dippers are racing up the beach to find their towels. But this is not a crisis driven by the US sub-prime mortgage debacle. The housing slump guarantees this is a generalised mortgage crisis. Sub-prime has just been exposed first. Buy beach towels.
