It’s probably too early to call a bottom in global equity markets, but the thought is tempting after looking at the past week and discovering that we’re still standing. Survival is always a confidence builder.
Still, this is no time to be a roaring bull, although some degree of optimism may be just the ticket.We’re oriented toward a contrary approach to portfolio strategy generally speaking, but that’s tempered by a healthy respect for risk and reward. And there’s still a lot of risk lurking in the global economy, and a fair amount of that continues bubbling within the U.S. In short, we still think the remainder of 2008 will be a challenging year on a number of fronts. That leads us to favor oppotunistic nibbling in asset classes where the margin of safety is relatively higher than, say, a year ago.
That said, it’s tempting to think that the point of maximum stress for the capital markets has come and gone this week. The Bear Stearns implosion a few days back promises to be the poster child for the current correction, much as Long Term Capital Management and Enron were for past purges.
Of course, there’s no way to say for sure if even greater hazards await. A number of economists we chat with regularly say that there’s still a risk that the current troubles in the U.S. could linger longer and cut deeper than the crowd expects. We’re told that the hangover from a generational accumulation of debt on the consumer level is one potential trouble spot for the years ahead.