The government’s “Cash for Trash” intervention that turned around the sharp decline in financials on Wall Street is buying investors precious time to reformulate their asset allocations and forestall financial disaster.
Pittsburgh has many well-informed investors, and I hope they’ll share their expertise with the less enlightened. Health experts counsel patients to learn as much about their condition as possible, so they can monitor their care and increase chances for recovery, and that advice rings true for investing.
Here’s my take on current conditions:
Until we reach the bottom in the housing market, and it starts to recover, financials are extremely risky. The half-a-trillion dollar financial bailout will restore confidence in the banking sector, but no one knows the total amount of red ink institutions have accumulated until housing starts to recover. This giant pail of American debt Treasury Secretary Hank Paulson is creating may lead to hyperinflation.
Another troubling move that helped Wall Street recover is the ban on short selling for 800 listed companies. Some experts say this intervention creates false prices and when the ban is lifted, on October 2, a crash of epic proportions will occur as all that pent up short selling explodes. I THINK IT’S A CERTAINTY THIS BAN WILL REMAIN IN EFFECT UNTIL AFTER THE PRESIDENTIAL ELECTION!
My advice is to favor companies with large cash reserves. Buy large cap technologies; industrials; commodities. Many of these companies were going up as financials crashed on Monday, Tuesday and Wednesday. As always diversify; liquidity is a big plus in a churning market – protecting your investments; not growth, is paramount. Stay away from the BRIC countries for now!
Do you agree with my evaluation? If not, or if so, please add your expertise. We, small investors, need your savvy input!