A crash in confidence

A crash in confidence

It is now becoming increasingly clear that what the United States is suffering from is not a financial crisis, not a credit crisis, not a meltdown, but a leadership crisis. You can see the global damage of what incompetent leadership can do. The meltdown in confidence in the present American leadership is so deep and so widespread it will take at least two years for confidence to return.
The American public, and indeed, much of the world public, have lost confidence in George Bush, in his vice president, Dick Cheney, in his central bank and Treasury leaders, in America’s banking and financial leaders. Treasury Secretary Henry Paulson lost much credibility when he allowed Lehman Brothers (long-time rival of Goldman Sachs, where he was CEO for many years) to go bankrupt and rescued Bear Stearns, Merrill Lynch and AIG. The closure of Lehman added to the fear of investors which spread worldwide.
Bush and Cheney are the two guys who spent the present value equivalent of $2 trillion to invade and occupy Iraq using a lie – that Saddam Hussein had weapons of mass destruction. And all the while, the enemy they should have been looking for was hiding in Pakistan, in its northwestern frontier. Bush gave the unlamented Pakistani dictator Musharaf $12 billion so he would cooperate. Instead, Pakistan descended into a political and economic crisis.
Bush and Cheney also engaged in mass arrests without warrants of hundreds of suspects, many of them found to be innocent later, and jailing and torturing them in some far away place called Guantanamo. Only the vigilance of the New York Times and the US Supreme Court slowed down Bush and Cheney in committing more mass violations of human rights. This is unprecedented in the history of America.
The irony is that Bush and Cheney didn’t realize that right inside America were the financial equivalent of weapons of mass destruction – the so-called derivatives known either as credit default swaps (CDS) or collaterialized debt obligations (CDOs). The value of CDS rose to a steep $62 trillion, more than the value of the world GDP which was $54.34 trillion in 2007.
Can you imagine that, US banks and financial houses accumulating debt papers whose value is more than the combined economic output of all countries of the world in one year?
Surely, somebody should be penalized for all this recklessness. As it turns out, it is the American taxpayer. Not just the American taxpayer. All the old people whose pension money has just evaporated. All the children of working Americans whose future has now dimmed because their parents have lost their jobs and therefore, the money to send them to school. All of them will suffer. As do all of us here in Asia.
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I was looking at the stock market prices of some listed companies. Based on their closing prices on Friday, Oct. 10, many of these companies have lost more than half of their market values compared with their 52-week high, opening opportunities for a buy.
Here are some of the price declines (as of Oct. 10, 2008; stocks rose marginally Monday, Oct. 13 so the values still hold) – Ayala Corp. 65 percent; Metrobank 64 percent; Ayala Land 60 percent; JG Summit Holdings 57 percent; RCBC 56 percent; PNB 53 percent; Banco de Oro 50 percent; Bank of PI 49 percent; Meralco 47 percent; China Bank 43 percent; and SM Investments Corp. 43 percent.
The best performer is terms of bucking the trend is San Miguel Corp.. At P49, its share price has lost only 20 percent from its 52-week high of P61.50. Henry Sy’s companies are also holding well.
Surprising to me is the weakness of the Ayala companies Ayala Corp. and Ayala Land as sell as BPI.
In any case, it may be time to go and buy stocks. It is not clear, however, where the bottom is. I feel the market still has a downside of about 20 percent, until after the November 4 US elections. Remember the cardinal rule of stock market trading – buy when blood is in the streets. Blood here meaning carnage and massive losses in values.

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