Blog: Dave LeggettBottoming?

Dave Leggett | 30 October 2008

Are we actually getting near to that 'floor' where investors start to see assets that look low price in relation to where they will be in two years' time and therefore jump in? Some sectors have taken a right old pasting, obviously. Construction firms, banks and automotive companies spring to mind. If you can judge where the floor is and you have a few million/billion dollars spare, that's how you get to be one of the 'sitting pretties' when the next 15-year boom happens.

People need houses and they need finance and, at some point, they need to buy cars.

There are some clever people doing a lot of sums, looking at past 'market corrections' to try to determine where this floor is. They're looking for those first early warnings and signals that we're getting closer. Interest rates are coming down rapidly. Inflation worries appear to have largely gone out of the door. Last time I looked oil was under $60 a barrel.

A few swallows do not a summer make, but the last 24 hours have seen some positive sentiment towards car companies on the markets. And I have just read a release from Edmunds suggesting that while the October sales numbers in the US light vehicle market are not exactly going to be cause for jubilation, the second half of the month saw a slight resurgence. Edmunds' analysts say that it could mean pent-up demand is starting to come through. If your car is falling apart and you do still have a job, maybe you have to take the plunge.

And if that is so, do you think at that end of the chain those finance companies who can finance purchases will continue to sit on their hands? At some point people return to the market to get a competitive advantage. A few move and then the rest have to. And that goes back through the chain to wholesale credit markets, also. Taxpayers have underwritten the banks. That message will start to seep through. The bad debts and the 'credit default swaps' might start to seem less scary as time goes by. Banks that don't lend are like restaurants that don't sell food. It's not a natural state for too long.

Okay, that's my attempt at an upbeat address. Yes, it's bad and we're heading into recesssion. But a) it is not the end of the world, actually - some correction to things like house prices in places like UK is not all bad - and b) the markets will have discounted much of the bad news and people are already thinking about making money in two years' time. The biggest bargains are the assets that will more than wash their faces five years from now. Not all car companies are crocks. Like the auto industry's products, appearances can be deceptive. Some of the worst looking companies are very much better underneath. Investor billionaires needing my advice know where to get in touch. 


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