Financial Professionals


One Year Ago


So, here we are, one year removed from one of the greatest generational buying opportunities in the history of our capital markets. A moment that history suggests to be greedy when others are fearful. Thinking back to the morning of Monday, March 9, I think the Warren Buffett / Becky Quick interview highlighted that even ol' Warren was fearful.

I myself was about to be a buyer of this "embracement of pessimism." But, first I scribed a bunch of reasons why I was plunking down some of the family cash in Armageddon. Following are my observations that I wrote over the weekend of March 7, 2009. These observations will stay with me forever, something never to be deleted.

 Enjoy…. Geez I wish I still had all my JPM buys @ $16……..

10 Positive Talking Points (in no particular order):

1. Credit markets are functioning and credit issuance in Q1 09 has been surprisingly robust. This was not the case in the wake of the Lehman collapse.

2. The number of equities marking new 52 week lows is markedly lower during this recent downturn. During the October liquidation, the number was well above 90%; we are not anywhere near that now.

3. The selloff in Q1 09 has been driven by one sector - Financials - that makes the root cause of the selloff easier to identify and correct over time. Technology, Energy, and Materials are holding their ground and, in some instances, recovering from recent bottoms.

4. The VIX remains relatively calm, not approaching the highs during the fall of 08.

5. The dollar is rising and the yen is falling - the yen witnessed a dramatic panic buying frenzy during the fall of 08.

6. Chinese equities bottomed in the fall of 08 and are an "outperformer" in 09.

7. Chinese economic numbers bottomed three months ago - this will lend support to global exports of Materials, Industrials and Energy.

8. US non-financial earnings have been dramatically marked down this quarter and during Q4 08 - that will lead to overwhelming surprises in forward earnings. Note the recent Intel and technology guidance.

9. Fiscal policy is advanced and plans are being implemented. The TALF, which supports actual asset prices, will begin this month.

10. The embracement of pessimism has never been higher; Q1 09 has been the "acknowledgement" quarter for a bleak economic outlook. In Q3 and Q4 2008, we operated in denial. Could the S&P fall to 550?  Maybe, that's 125 from Friday's trading. Long term investors will recognize the opportunity that current levels present. Better to risk 125 further on the downside for a possible 400 upside in 12 months than to buy in at the 800 level and have a new downside risk / reward parameter of 250/275.

More work to do:

l. Moderation in the decline of House values

2. Toxic assets off bank balance sheets

3. Transparency and recognition of losses on financial institutions' balance sheets

4. Commodity currency rise

5. Western / Eastern European coordination to resolve debt crisis

6. Durable goods orders in the US rise

7. ISM new orders get back above 50

8. Devalue or Deflate - US dollar begins to "devalue," taking pressure off asset prices to decline, eroding corporate profits, shrinking output and declining wages


Past performance is not a guarantee of future results.

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.