THE WALL STREET SELF-DEFENSE MANUAL

Introducing New Blog...Investment Intelligencer

Thanks for your interest in the Wall Street Self-Defense Manual.  This site contains more information about the book, including excerpts, the table of contents, and a welcome note.  It also contains links to other investing books and resources that I hope you'll find helpful.

I will continue to post additional book excerpts here for the next several months, and I will leave the site up indefinitely.  As of today, however, I am going to post additional market and investing commentary on a new site, Investment Intelligencer (www.investmentintelligencer.com).  Like the book, the site is designed for intelligent investors, and it will draw on smart ideas from academia, Wall Street, and the financial media.  It will pick up on many of the themes I discuss in the book, and it will also include analysis of some important fundamental issues.

Thanks again for visiting the site.  I hope you enjoy the Wall Street Self-Defense Manual, and I hope to see you over on Investment Intelligencer.

A Pretty Feeble "Rebound"

After living through one market meltdown (in which I had prime seat at the table), I don't think it is possible to predict whether yesterday's collapse is a harbinger of doom or just a sharp reminder that markets don't always go up.  Despite what they'll tell you now, almost no one predicted the 2000-2002 debacle; on the contrary, for the first 6 months of the downturn, the majority of folks (including yours truly), thought the sell-off was just another in a long series of "corrections" that the market had experienced almost every year in the latter half of the 90s.  It wasn't until late 2002, when even the S&P had been cut in half, that it was widely agreed that this was it--the big one.  (And that agreement, of course, was a hint that it was a wonderful time to buy).

So the bottom line about all this musing about "what yesterday's sell-off means" is "no one knows."  That said, using cyclically adjusted valuation measures (those that take into account today's record-high profit margins--see Grantham below), the market is still significantly overvalued, and that condition will probably correct itself eventually.  I'm also not sure why today's 50-point rally has triggered relieved headlines about a "rebound."  If yesterday's panic really was just a momentary flinch after Shanghai and we really are off to the races again, one might have expected to see a bit more universal enthusiasm.

About that Housing Market Stabilization...

Amid glowing reports that the housing market has stabilized (ergo, it's off to the races again) come anecdotes like this one, about a spike in foreclosures in Massachusetts. 

Mass. foreclosure filings smash record (From Boston.com)

January had the highest number of monthly Massachusetts foreclosure filings in at least two decades as local consumers struggled to hang onto their homes, according to a new report.

Last month, 2,207 foreclosure filings - or 110 every business day - were submitted in Massachusetts, more than double the number of a year ago; filings in January 2007 were up 105 percent from 1,076 filings in January 2006, according to ForeclosuresMass.com, a Framingham firm that provides online Massachusetts foreclosure data to investors, real estate agents, and lenders.

"The flood of foreclosures in Massachusetts is not only continuing; it has reached a new high," company president Jeremy Shapiro said in a statement. "The fact we are starting the year with the highest number of foreclosures we've ever recorded for a single month is more than significant - it's ominous."

Because housing is one of the sectors that could, in fact, bring the whole economy down, resolving the "stabilization" question is important.  Although the Massachusetts and other "subprime" anecdotes concern mainly the low-end of the market (and all those poor folks who hoped that interest rates would stay at Japanese levels forever), the contagion could still spread--especially if long rates ever tick up.  Given this, combined with the fact that down cycles in housing usually last about 5 years, not 1 year (and usually trough well below the long-term trend line), the wise conclusion is probably that we're still closer to the beginning of the housing "correction" than the end.