Spring 2009 Market Commentary

Solve for (where r=recession).

It wasn’t until March 24th that the full details of the Treasury’s plan were unveiled. The Public-Private Investment Program (PPIP) would use up to $100 billion in Troubled Asset Relief Program (TARP) funds to purchase illiquid mortgage pools and mortgage-backed securities.  Under the plan, the Treasury would select 4 to 5 private investment managers to participate in an auction to purchase assets that banks have elected to sell.  The Treasury would then match whatever capital is invested by the private firms with the remaining leveraged capital.

Since the close of the First Quarter equities have climbed well over an additional 10% and markets continue to heal.  Consumer confidence is rising (albeit from near-suicidal rates) and corporate earnings are generally beating drastically lowered expectations.

We reminded readers that during all but two modern panic markets (post Civil War), indices rebounded most if not all of their losses within two years.  We also warned that many will say this it it different his time.  So is it?

These panics may all come about as a result of combinations of different economic conditions but there is always a constant resent in every single one of them….HUMANS.  The human investment psyche is a predictable as the outcome of a Chicago Cubs baseball season.  Fear and greed make us do stupid things at points of market extremes.  In fact, these emotions are the route of most of these extremes.  The reason is that every severe market panic has been followed by explosive stock rallies in the Unites States (even in the unsuccessful recovery from the Great Depression when the markets rallied 400% from their 1933 lows). is because of the over exaggeration of pessimism and fear that made up pricing at the market lows.  As rational thought returns, price normalization comes with it in the form of massive, rapid rallies.  This momentum fuels greed that pushes prices even higher.  If the recover is real, the prices maintain.  Whether we are finally experiences the true recover rally that will take us to the 10000, 12000 or even to new highs remains to be seen.  What we do know is that we are certainly on that road.

Jim Scheinberg