Saturday, November 3, 2007

The State of the Markets

So what are the current key themes in the market? I'll tell you what I have my eye on lately:

1) The subprime mortgage fallout and its continued impact on the financial markets. Lately the big news is I-Bank writedowns. Merrill Lynch happened to report its earnings a little later than some of its peers, but I'm sure there are more Merrill-type announcements to come. Citigroup is getting rid of Chuck Prince, Merrill tossed Stan O'Neal (and paid him a ridiculous $160 million to leave), and there's more to come.

2) The decline of the dollar. I think it now costs about $1.05 to buy a Canadian Loonie (Canadian Dollar). It's still falling against the Euro and other major currencies as well.

3) The ridiculous performance of emerging markets. My emerging markets mutual fund is up over 50% this year, on top of gains in the 30% area for the past few years. These things are really overheating. China's stock market has also seen a tremendous rise and it really reminds me of NASDAQ 1999 (ie a bubble).

4) Commodity prices. Oil is somewhere around $95 a barrel now. It's gone up like a rocket in the past couple of years. Gold hit $810 an ounce this week, its highest level since 1980.

Financial stocks have been selling off lately. I don't recommend investing in individual stocks, but if you dabble in the market like I do, you might want to take a look at Moody's Corp. (NYSE: MCO), which has fallen to what I consider to be tantalizing levels in the low $40 per share range. For a long term investor, this might be one of those rare opportunities to pick up shares of a company that enjoys a unique, semi-monopoly position in its market. Of course, it has it's share of risks. Securities issuance has fallen dramatatically in certain segments of the market, and there's always a regulatory threat hanging over the company. I believe Warren Buffett's Berkshire Hathaway owns some MCO shares, based on some things I've read.

No comments: