Some random stuff for the day...
- One bright spot for Icleand... tourism (BusinessWeek): Iceland got a $2 billion loan from the IMF so that should stabilize things somewhat. Some of their industries will do extremely well, assuming their finances and access to credit is decent, given the massive collapse in the currency. One such industry is tourism.
- Emerging market debt problems (BusinessWeek): One of the last remaining bubbles is the emerging market debt bubble. Many emerging markets were priced as if defaults were a rare thing. The graphic accompanying the BusinessWeek article highlights the following danger regions: Baltics (Lithhuania, Latvia, Estonia), Ukraine, South Korea, Pakistan, Turkey, Persian Gulf, and Eastern Europe (Hungary.) One thing about a publication like BusinessWeek is that it is generally backward-looking and reports the problems faced right now. In contrast, a publication like The Economist is forward-looking and often speculates on potential future problems (some of which may end up being wrong.) In any case, here are some articles from The Economist looking at the present situation: EM conditions & Eastern Europe. One thing I don't get is why Russia is having serious problems when it is one of the few countries with a current account surplus and a large reserves.
- PNC take-under of National City Corp (MarketWatch): If anyone wonders why investors are fleeing the banks, one such reason is situations like this. PNC is buying out NCC bank at below-current-market prices. NCC stock promptly plunged 20% upon the news and is likely dragging down all the other regional banks as well. There was only a few days in the last month that NCC traded at or below the takeover price. What is happening is neither right nor wrong; it is what it is. Anyone investing in financials need to seriously consider the possibility of a take-under or government nationalization. One can argue that these institutions would be bankrupt otherwise, but it still means that valuations mean very little.
- How cheap can valuations go? (Geoff Gannon): Geoff Gannon wrote one of the best articles on long-term valuations a few years ago. Do check it out when you get some time. One of the key points to understand is what Geoff says is the following: "Stocks are not inherently attractive; they have often been attractive, because they have often been cheap." It's always scary to realize how high valuations were in the last 20 years compared to history. Fortunately, this is good news for me or others if they are lower class without much money and/or you are young because we can buy assets at lower prices (and our portfolio size is small relative to income/savings.) Always remember that lower prices imply higher returns in the future.