We were definitely extended, particularly in the semis. But that has certainly moderated in the past month and although we’re not “cheap” in terms of traditional valuations, we are cheaper than last year, so that’s a start.
But the vanguard of the sell off emanated in Japan, with the Yen carry unwind. JP Morgan came out of with a note last night that say 75% of the unwind was complete.
There are two types of sell offs in stocks.
1. Based on fundamentals, slow down in the economy.
2. Plumbing: margin calls, banks and their stupid investments, some giant fund blowing up.
The latter almost always resolves itself and leads to a sharp rally. The former is the one you need to worry about. The malevolent nature of 2008 was that the banks had fucked the market and the prices of the paper they were unloading caused a rippled effect that fucked the economy, specifically home owners and speculators. This whirlwind wiped out many, as flippers scrambled to sell at any price possible. The losses were monumental.
But this isn’t that and there isn’t an asset class owned by both banks and the plebs that is at risk now to the general economy.
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Calling bullshit on JPM’s 75% unwound statement. If we don’t realize we are in trouble yet, at least we have been given warning. This is a replay.