| The information
reflects the views of Pete Seeley, Van Kampen Strategist.
These views may change in response to changing circumstances
and market conditions and may not actually come to pass.
These comments are not necessarily representative of the
opinions and views of the firm as a whole and do not purport
to represent a complete picture of the marketplace nor the
future performance of any Van Kampen product. Past performance is no
guarantee of future results. The depth and extent of current credit and liquidity
problems is serious, and I do not believe that it is
helpful to soft soap these problems. I have long since
argued that this primarily is about a bursting credit
bubble, not about mortgage defaults or a recession,
which I see as symptoms rather than causes. Many
aspects of the problem, especially a contraction of the
banking system, are likely to become more
pronounced during the coming months. That said,
what is different this time is the speed and skill with
which the Fed is moving to address specific problems
as they arise and, more generally, the clear message
that it will do whatever, whatever, is necessary to
underpin the financial system. In essence, its actions
are interrupting the negative feedback loop between
worsening credit and liquidity conditions and
deteriorating economic conditions.
True, there may be limits even to the size of the
Fed’s balance sheet. But the Treasury owns the
printing press. At worst, I see the possibility for
somewhat higher inflation in the aftermath to the
Fed’s and Treasury’s actions, but not a substantial
worsening of economic and financial conditions.
In my view, while there are more innings in the
credit bubble draining, the stock market tends to
discount change, which implies that the equity
markets may bottom long before the credit markets
and the economy sort themselves out. Indeed, it
would not be a shock if we are making that bottom,
now. Many of us are hopeful that Lehman’s and
Goldman’s earnings announcements signaled a turn
for the better for broker dealers.
So, further declines in equity prices remain
possible, but I continue to view 1060 to 1276 on the
S&P as the target range for this bear market. We
have breached the top end of that range but may not
need to best the bottom of the range. After all, I really
do not believe that, for all of the problems we are
seeing, that the real value of America’s leading
companies is over a third less than the market thought
it was at the 1576 high in October.
In my opinion, the implications for investors
generally are: riding through the final stages of the
bear market; not bailing out at what may prove to be
bad levels; and finding opportunities to reposition their
portfolios for solid results in a recovery. The specific
opportunities depend on each investor’s needs and
objectives. I set out some thoughts in a commentary,
which should be posted to our website in the near
future. Suffice it to say, I view markets like these as
opportunities to build forward-looking investment
positions. All the best to each of you in working
through a challenging market.
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