Peeling the onion

Over the past few weeks, I’ve offered up several short blurbs about the unraveling of the financial markets. To my surprise, it is a subject which continues to get only cursory media attention.

Were it not for the coverage in the foreign press, a person might be persuaded that all is well, that this is just a temporary slowdown which will be over and forgotten soon enough. I wish it were true.

"The fourth quarter ['07] may be the worst earnings period for the financial industry since the Great Depression." So said JPost in mid January. As the 10Ks roll in, the good news may be that it's not quite that bad. The bad news, however, may be that the worst is yet to come. The fact is, nobody really knows how much of a hit the industry is going to take -- primarily because of the uncertainty of putting an accurate valuation [heck, at this point, a ball-park valuation would be nice] on a particular type of security, a derivative known as a collateralized debt obligation, or CDO.

The unraveling is not limited to US banks and insurance companies. The Telegraph is reporting that EU banks are staring down the barrel of an additional $68 bilion in write-offs, as yet another layer of the onion is peeled away.

Our major financial institutions are in trouble. Our political institutions are both unprepared and unwilling to lead.

Most of us will feel the bite in our 401(k)'s. We're still a month away from the mailing of the 2008 1st quarter account statements, which will cause many folks to pay attention to this for the first time. Most of the major indices are down double digits YTD, the Benchmark S&P 500 down about 12%. The additive effect of the poor results for 4th Q '07 will be a combined decrease of over 20% from the market high, and maybe more by the end of this quarter.

Six years ago, after taking it on the chin following the Tech Bust, I rebalanced my portfolio to a "moderate" profile, about 60-40 stocks to bonds. I've maintained that profile, even though the temptation was to chase after the returns during the Bush bull market. Now, the temptation is to move to sidelines and wait it out. I think, though, I'm going to keep doing what I've been doing. I'm trying to practice what I preach: fend for myself, prepare, study, decide, adjust, adapt, and overcome.

There is more to come. The unraveling continues.