Q1 2009 - December 10, 2008

I do think that next quarter will be disappointing as companies will report earnings depressed by credit issues in the economy here and globally in the current and past quarter. There might be some hope of added business in the first quarter as companies come-up with new budgets but I would not count much on it as many of them will be slashed. The anticipated govt and state spending will take its time to work through the complex system to show any impact in the earnings till end of next year.

Meanwhile I think European banks will have more skeletons to show from their closets related to their exposure to emerging markets. Both default and currency. You will see some acquisitions in Pharma and Financial sector. I don’t think the banks will feel comfortable to lend as long as the economy goes deeper into recession. So credit should remain relatively tight, after-all its not just the banks who have to de-leverage but the entire nation has to. It will be a while before all of us de-leverage. The govt program to bring the mortgage rate down to 4.5 for new home purchases for qualified buyers with good credit only will do little to prop-up employment as it will only impact the existing inventory. Plus I think the effort should be to provide credit relief to employers and not to home buyers.

The only thing that is positive is that the U.S consumer is saving 300 Billion and the rising Dollar. I think on risk return basis, dollar and Yen may be the best bet in the short run. High grade corporate debt over the medium term. For the long term I still prefer large cap dividend yield for companies that have always believed in dividend sanctity and operating cash flows. Closed end funds over open fund and ETFs due to discount to NAV available in closed end funds. The wide spread between the NAV and Price has been persistent over the past year and people who bought these attractive have not had any relief from narrowing of the spread and it probably won’t till we see some positive signs out of the economy.