Investors would be wise to beware the Bear Market ebb tide that is currently just getting underway.
The old Wall Street saying that a rising tide lifts all boats is even more true in reverse. Once the tide starts flowing out it becomes a dangerous self reinforcing force.
This bear market ebb tide will certainly drag Capital One Financial Corp. ( COF ) down as it is one of the nations leading issuers of credit cards. As the recession deepens people who are losing their houses and people who have lost their jobs will be far less concerned about staying current with credit card payments. Many of them will just not have the means to service their debts and will declare bankruptcy.
Those investors who still think that the government and Federal Reserve bank will still somehow save the economy from a severe recession are just not aware as to how severe and dangerous the challenges overhanging this market are. They also underestimate the speed at which unpleasant events unfold to the downside. Many years of price appreciation can be wiped out within just a few months.
The absolute worse fall in housing values since the great depression has no signs of reaching a bottom. Prices could easily fall another 25% from current levels. In Japan, starting in about 1989, real estate prices started falling and in some areas fell 70% from their peak levels before a weak recovery began. Nineteen years later Japan has yet to make a full recovery.
I'm pretty sure that it is the fear of this type of real estate depression that has the Fed Chairman, good old over his head, Ben Bernanke, pacing the floor late at night when he should be sleeping.
As if fears of a complete collapse in real estate aren't enough, including a collapse of commercial real estate values which is just getting underway, hard working Ben must worry about the trillions of dollars of hard to evaluate, even harder to market, derivatives that fill up the portfolios of investments banks, commercial banks, brokerage firms, insurance companies, state retirement funds, and of course hedge funds.
To read the full article go to http://taipaninvestor.info/blog
$50.1 (03/27/08)
