WindFalls

Overall, the market is steadily receding from it's recent high-water mark in the wake of a reckless financial sector and an over reliance on debt for insipid and poorly vetted acquisitions. Yes, cheap money abound, the market is apt to become gluttonous and binge on such sugary delights as hyper-complex securitized instruments based a single asset class that is inherently illiquid (i.e. real estate). CDOs gave rise to CDOs "squared" and teams of lawyers worked furiously to assemble ever larger reams of documents to strap them together. Today, they are putting together different and more familiar documents in the form of class-action lawsuits aimed at the people who unluckily lost the most money when these instruments fell off a cliff.

It's not, I would say, that the smart people involved in these activities generally lack the perspective to recognize similarities to the countless historical market bubbles and pops, but that they do not care so long as they are careful enough to not be stuck with the fan when the waste is furiously racing towards it at 100% gains per year speeds. Indeed, many didn't get out of the way in time.

Of course, none of this is surprising. Even today, as we have a series of similar gains being posted in the energy commodities area, the same smart people are echoing the familiar refrain that "this time it's different". This conventional tale will continue to get respectable clout for a period, but will ultimately go stale as oil falls into its perpetual cyclical trends.

So, what to do now? The financials are dropping steadily. China and other emerging markets are dropping too. The price of oil is starting to show alarming similarities to the recent real estate bubble. Inflation is up across the boards...

Well, let's start with, as I always do, what looks cheap? Financials are starting to look attractive from a long-term perspective. One stock stands out in particular to me. JPMorgan Chase & Co. (NYSE:JPM) looks particularly attractive here at 1.0x price to book. Their management team is as strong as they come. I believe the Bear Stearns deal will turn out to be one of the more prescient moves of this decade. Start nibbling at this stock over the next 6 months as it moves below $40/shr. Housing will most likely continue to fall for a while longer through 2009, but as it does, consider slowly buying into this stock on the resulting pullbacks.