Tuesday, 25 March 2008

Don't Trust the Wall St Rally

... once the current crisis is past, there's another issue facing the financial sector: Will it look like it used to? "I think it is important to step back and ask some broader questions about our financial system," wrote Ben Inker, the chief investment officer for quantitative equities in global developed markets at money management firm GMO, in a recent paper. "What it does, how big it should be; and what its sustainable level of profitability might be."

The crux of the argument here is that stocks still appear to be over valued by at least 10% despite recent corrections. However, the evidence favouring the position that the current financial crisis is past is not strong. I would bet there are a lot of fearful investors still out there.

And there are plenty more losses to be written off in the the coming weeks and months - there is still the danger of the unresolved derivative market losses.

[Posted at the SpookyWeather blog, March 25th, 2008.]

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