The results are in: The sub-prime mess has surfaced (what a surprise), the "carry trade" is unwinding, the housing market is a catastrope, derivative hedges don't work, and the Market is tanking. Where do we go from here? The Mortgage Resets have started but will get worse through the 1st quarter of 2008. Housing prices and Units sold will go lower through 2008, and the Stock Market will probably have a rally once in a while followed by new declines. My Economic model is forecasting a recession starting within the next 4 months.
Many of the so called experts have maintained the Stock Market is properly valued. A stock market that pays a sub-par dividend with PE ratios in excess of 17 times in my view is not properly valued. In theory a Stocks Prices is equal to the present value of their future dividends. Most stocks don't pay dividends, which brings to mind the greater fool theory.
My advise is to dig in, stay liquid and wait for the panic to subside. The "unintended consequences" of crap lending has just begun to surface.
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