Should I buy equity now?
Hopefully, the acute phase of the crisis is over. With the EU governments investing around 2trn€in different ways to sustain the credit markets (either through shares purchase, account guarantees etc), it seems that the risk of a systemic collapse of the financial world is now smaller than a few weeks ago. For this reason, markets bounced back 10 or 15% and they are still 5 to 10% higher than the bottoms. You don’t get much these days for a few trillion USD or EUR.
Despite the fact that the market could be less volatile in the coming weeks, I don’t think I will be buying shares because it’s my belief that stock prices still don’t reflect the difficult economic conditions that we will be going through very soon. Also, 2009 corporate forecasts and expectations are beginning to come out, and they look quite dire. And you would be crazy to expect anything better. The crisis is real, and it is spinning out to the broader economy, with a lot of uncertainties. Also, year end is a good time to come out with very conservative estimations: low targets implie low options strike prices for executives and higher upside the following year.
I therefore think I will be sitting the whole Q4, and possibly Q1, before looking out for bargains. The stock market (Wall Street and the Nasdaq, the emergin markets even more) has gone down quite a lot, and it would take a 50+% increase to get back to the previous tops.
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