ABL Money Management Update

 

The extreme downside volatility has brought valuations to 

more attractive levels, but during times like these the 

pendulum usually swings to extremes.  Global equity 

valuations definitely look more appealing than a year ago 

when we suggested raising cash positions.  However, 

investors are just beginning to understand the 

complexity in the massive leveraged excesses over the 

majority of this decade.  The ripple effects of subprime 

are even far greater on a worldwide scale than we 

feared early last summer.  You will hear more and more 

talk about raising cash in the weeks to come, but the time 

to do it was one year ago when the S & P 500 hit a record 

high, or earlier in the summer of 2007 when there were 

plenty of warning signs that financial markets were 

heading out of control.  The reactive methods utilized to 

fix the credit problems will not only take much longer to 

take hold (because of the procrastination), but may in turn 

establish a new set of problems of which we are unaware.  

We are still seeing too many investors taking excess risk 

in emerging and international markets, and would 

recommend a significant under-exposure in the area, as 

many of their problems will take even longer than 

America’s to remedy.  For the first time in 16 months we 

are seeing some worthwhile upside in select equities, but 

that potential upside will take some time before investors 

will realize meaningful and sustained benefit. 

 

lower their risk.  This was obviously a much more 

difficult decision for us to make than it was one year ago 

when the S & P 500 was establishing new record highs, 

but even with passage of the bail-out (or rescue) package, 

there were still too many factors that concerned us.  We 

mentioned in the September 10, 2008 research piece from 

LanczGlobal.com that since Lehman Brothers and 

Washington Mutual were already on every investor’s 

radar, potential new problem areas that would likely rear 

their ugly heads would include dramatically slowing 

economies in the emerging markets and recessions in 

much of Europe.  Earlier this year, we stated several times 

that European banks will be yet another 

many of their financial institutions in worse shape than the 

U.S.  European banks average nearly $1.40 loaned for 

every $1.00 worth of deposits compared with the United 

States banks loaning approximately $0.96 of every $1.00.