Net Worth Review for February 2007 & Market Commentary
Posted by Frugal on March 7th, 2007
For the month of February from 2/1/07 to 3/1/07,
- Net worth is up by 2.61%.
- Value of my company holdings (stock options, ESPP, etc.) is up by 12.55%.
- Everything else excluding my home and cash is down by 4.83%.
- If including cash in #3, it’s down by 3.80%.
I didn’t expect precious metals to go down much harder than the general market. My portfolio took a beating. In any case, the market finally has woke up to the subprime lenders’ woe. Although people may attribute the fall to China, or Greenspan’s recession speech, I believe US market is really the core of the problem in the global markets. They can get Greenspan to come out 10 more times to correct his words on recession odds, but it will not change the downward spiral in the mortgage market.
The downfall in the mortgage market is fundamentally very positive for PM. That is only the first shoe to fall. If Fed does not control the blow-up properly, we can see the long-waited $US fall sooner than later. If Fed starts to lower interest rates to arrest the downward spiral, it will also be positive for PM.
I believe the secular bear market in stocks may have resumed. The unfolding of such secular bear market however does not necessarily mean a fall in the absolute price of the stock market this time around. Rather, the stock market will fall on an inflation-adjusted basis, and also against gold. There is also a chance that Fed stops the downward spiral in time, and create a bigger bubble in everything going forward. The most likely timeframe is in 2008/2009 for next (potentially higher) peak. In fact, the stock market can put in a higher high in 2009, but not necessarily beating the accumulated inflation since 2000. I do expect the stock market to go lower than the low on 3/5/07 this year. I also expect the general stock market to put in less than 3% gain for the entire 2007 year.
I’m liquidating most of my non-PM/oil positions which were worth less than 4% of my entire portfolio. Due to the leverage that I can get, I still have not sold much out of my stock options. I am retaining my bets in PM/oil for a continual debasing of the currencies and bull run in commodity market.
Best luck navigating in the dangerous water.
Special note: returns were calculated by subtracting 3.00% APR return of my cash position.
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March 7th, 2007 at 5:44 am
If you are going to liquidate, it seems to be a general consensus that you should do it this week as we are in an “oversold” bounce. Pros fully expect that the markets still have some down side to them.
FT
March 7th, 2007 at 1:59 pm
I’m pretty much done for liquidation after today. The holdings in the general stock market in my portfolio are now less than 0.2% of my total net worth.
March 8th, 2007 at 9:06 am
Wow. We couldn’t have more polarized opinions on where the market is going. I expect this is a short term blip (4-6 weeks), especially if old Ben comes up with a rate cut in May, which I think he will do. Despite an overall/general slowing of the economy, liquidating entirely seems pretty risky given valuations and global growth prospects. When you say “
March 11th, 2007 at 9:52 am
Fin_indie,
Frugal is only liquidating his non-core positions. FWIW, I’m doing the same. Valuation is not as expensive as 2000 but it’s not cheap by any measure. If you read my latest post, the economy seems to be making an intermediate turn. So profit growth is expected to stall and valuation will be reassessed.
Global growth is the reason that I’m not a doom-and-gloomer. But I expect the market to sell emerging markets when it picks up the wind of housing spilling over to the larger US economy.
If you do expect a lowering of rates, as I do, then the safer bet is in treasuries and PM. Contrary to popular belief, if you take out the knee jerk responses, the stock market falls with rates since the Fed usually lags the market. In addition, it takes at least 6 months for rate cuts to work through the economy.