Equity market off life support, but what's next
The last month has been a reminder of what once had been, a time when it was a normal reflex to look forward to checking the equity markets during the day. It wasn't that long ago, but it seems like forever. What's next is unclear, but this has been a relief.
So far the revival of the equity markets simply may be the result of a hugely oversold market that is no longer being punished by irrational seeming but forced panic selling. Finally reinstating the uptick rule and making an adjustment to mark to market accounting roughly coincide with the beginning of the rally from near death in early March. It is likely that now we are just reaching or moving toward some rational equilibrium, at levels that are still extremely low, such that the real work of determining what equity values are can begin.
The rally does not seem to be the result of any discounting of future cash flows or economic value added. It's just buy because everything is dirt cheap. There are these things around Manhattan every week referred to as "sample sales". Maybe it's the same everywhere. I have no idea. What they are is closeouts of merchandise by well known brands and designers at huge discounts. My family is really into this, and I too go from time to time. There are so many values that these things can be dangerous. Want a beautiful cashmere Euro cut sports jacket made in Italy that still has the retail tag of $1,395 on it for $119. What about a plush velour blue blazer that looks like something Brian Jones might have worn, retail price $599 but a steal at $25. Then there's an insulated suede zip up hunter's vest, padded to protect against recoil, retail $699, can't pass it up at $79. Look no further than my closet to find them. They may or may not be things that I wear. That said almost all of my shirts come from these sales now, casual sports jackets and sweaters as well, the basic stuff that I wear every day.
Is there a parallel here to this market. Almost everything is too cheap to pass up. The value will sort itself out later.
We wait as well to see if there will be any final markdowns before this inventory is cleared.
So far the revival of the equity markets simply may be the result of a hugely oversold market that is no longer being punished by irrational seeming but forced panic selling. Finally reinstating the uptick rule and making an adjustment to mark to market accounting roughly coincide with the beginning of the rally from near death in early March. It is likely that now we are just reaching or moving toward some rational equilibrium, at levels that are still extremely low, such that the real work of determining what equity values are can begin.
The rally does not seem to be the result of any discounting of future cash flows or economic value added. It's just buy because everything is dirt cheap. There are these things around Manhattan every week referred to as "sample sales". Maybe it's the same everywhere. I have no idea. What they are is closeouts of merchandise by well known brands and designers at huge discounts. My family is really into this, and I too go from time to time. There are so many values that these things can be dangerous. Want a beautiful cashmere Euro cut sports jacket made in Italy that still has the retail tag of $1,395 on it for $119. What about a plush velour blue blazer that looks like something Brian Jones might have worn, retail price $599 but a steal at $25. Then there's an insulated suede zip up hunter's vest, padded to protect against recoil, retail $699, can't pass it up at $79. Look no further than my closet to find them. They may or may not be things that I wear. That said almost all of my shirts come from these sales now, casual sports jackets and sweaters as well, the basic stuff that I wear every day.
Is there a parallel here to this market. Almost everything is too cheap to pass up. The value will sort itself out later.
We wait as well to see if there will be any final markdowns before this inventory is cleared.
posted by John Borden at 10:16 PM
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