Comments on: James Montier sees “deep value” in markets – he is bullish http://www.creditwritedowns.com/2008/11/james-montier-sees-deep-value-in-markets-he-is-bullish.html Finance, Economics and Markets Fri, 10 Feb 2012 00:37:00 +0000 hourly 1 By: Edward Harrison http://www.creditwritedowns.com/2008/11/james-montier-sees-deep-value-in-markets-he-is-bullish.html#comment-768 Edward Harrison Wed, 26 Nov 2008 20:33:51 +0000 http://www.creditwritedowns.com/?p=1583#comment-768 Stevie b, so nice to hear from you. I got out of a lot of stocks earlier this year and shifted into TIPS. But, after the Lehman bankruptcy I sold TIPS. Basically, I thought up until September that we had equally likelihood of high inflation as we had of deflation -- at least over the medium term (1-2 years). The Lehman Brothers incident and the subsequent fallout showed me that asset deflation was going to lead to commodity and eventually consumer price deflation. So, I can't agree with Hamilton because I fear deflation and moved away from TIPS for that reason. Nevertheless, I wouldn't discount his scenario because the Fed is doing its darndest to reflate. They fear deflation because it will increase the real burden of debts in an indebted United States. And if they are successful, then my original trades of TIPS and precious metals would look good. Right now, the balance is leaning away from that trade. As for what the Fed should buy, I reckon they will start buying lots of asset-backed securities. The question is at what price. This market is collapsing and writedowns are imminent because of FAS 157 so the Fed needs to provide liquidity there very soon if it wants to go the reflation route. As much as I fear deflation, I fear the extremes to which the Fed is willing to go in order to reflate. These are not ordinary times. Stevie b, so nice to hear from you. I got out of a lot of stocks earlier this year and shifted into TIPS. But, after the Lehman bankruptcy I sold TIPS. Basically, I thought up until September that we had equally likelihood of high inflation as we had of deflation — at least over the medium term (1-2 years).

The Lehman Brothers incident and the subsequent fallout showed me that asset deflation was going to lead to commodity and eventually consumer price deflation. So, I can’t agree with Hamilton because I fear deflation and moved away from TIPS for that reason.

Nevertheless, I wouldn’t discount his scenario because the Fed is doing its darndest to reflate. They fear deflation because it will increase the real burden of debts in an indebted United States. And if they are successful, then my original trades of TIPS and precious metals would look good.

Right now, the balance is leaning away from that trade. As for what the Fed should buy, I reckon they will start buying lots of asset-backed securities. The question is at what price. This market is collapsing and writedowns are imminent because of FAS 157 so the Fed needs to provide liquidity there very soon if it wants to go the reflation route.

As much as I fear deflation, I fear the extremes to which the Fed is willing to go in order to reflate. These are not ordinary times.

]]> By: Stevie b. http://www.creditwritedowns.com/2008/11/james-montier-sees-deep-value-in-markets-he-is-bullish.html#comment-767 Stevie b. Wed, 26 Nov 2008 17:22:28 +0000 http://www.creditwritedowns.com/?p=1583#comment-767 Ed - was listening in on a conference call last night to Bruce Berkowitz (used to work with him a couple of decades ago) of Fairholme who has also been seeing terrific value at these levels. He is rightly prepared to look beyond the initial losses of buying too early on the way down (& what's the point of buying too late?) because -yep- clearly there's no gain without pain. I too love being a contrarian (one-way streets make me nervous...) but I just worry - in a way I never worried before - that ( gulp) this time it really is different. All the old historic yardsticks about debt/dividends/cash/flow/p.e.'s/divergences etc etc assume stetched versions of normality. We seem now not even to be in abnormal times - we are truly in uncharted territory. We are seeing new ad hoc solutions when the previous ad hoc ones didn't work. With each new non-solution we slide inexorably deeper into the mire, but one thing seems inescapable - whatever the cost, there will be no deflation. I'd really like to know if you agree with this " no deflation" view. I'd also really like to know what you think of Prof. James hamilton's view ( http://www.econbrowser.com/archives/2008/11/time_for_a_chan.html ) that basically the Fed should be buying-up all the TIPS it can get it's hands on at these levels. Ed – was listening in on a conference call last night to Bruce Berkowitz (used to work with him a couple of decades ago) of Fairholme who has also been seeing terrific value at these levels. He is rightly prepared to look beyond the initial losses of buying too early on the way down (& what’s the point of buying too late?) because -yep- clearly there’s no gain without pain.

I too love being a contrarian (one-way streets make me nervous…) but I just worry – in a way I never worried before – that ( gulp) this time it really is different. All the old historic yardsticks about debt/dividends/cash/flow/p.e.’s/divergences etc etc assume stetched versions of normality. We seem now not even to be in abnormal times – we are truly in uncharted territory. We are seeing new ad hoc solutions when the previous ad hoc ones didn’t work. With each new non-solution we slide inexorably deeper into the mire, but one thing seems inescapable – whatever the cost, there will be no deflation.

I’d really like to know if you agree with this ” no deflation” view. I’d also really like to know what you think of Prof. James hamilton’s view ( http://www.econbrowser.com/archives/2008/11/time_for_a_chan.html ) that basically the Fed should be buying-up all the TIPS it can get it’s hands on at these levels.

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