What do we read from it?
For starters I read the following:
If some one who is a stringent adherent to the value investment doctrine of Graham is saying that there are few opportunities in the US, it means a large section of the investment fund industry (value Funds) should be finding the same and building cash not equity positions.
As I believe the closest thing we have to a line of truth in terms of prices is based on Value and the accepted Net Present Value expectations from a stream of earnings, actual prices oscilate around this line depending on sentiment and other demographic distortions (like Baby Boomers of the last 15 year bull run, (now starting to retire!)). The further flung they get from this line the more violent the shocks. It used to be accepted that mature industries averaged 15PE's Nasdaq ave is in the 90's, surely there are more boo.com's and Enrons than eBays (a genuine new idea which introduced a truly new realm of trade and microindustries) in this group.
Where previously we may have had forgiveness in entering positions with the bull run always insuring good exits, I believe we may have a market more prown to downside shocks than upside one's at least at an indices level.
This means maybe we should have preset stop profit targets for any entry and avoid a vague exit plan which is ad hoc dependant on market development once already in the market.
Tight stops and entry's involving high momentum breakouts (when going long) which confim the set up almost immediately with quicker exits if the pattern does not develop as planned.
A greater predisposition to developing and entering shorting strategies and inhanced liquidity to ride out the higher volatility that are associated with rapid falls. Volatility based trading strategies that could utilise options.
These are just an off the top of my head assessment in terms of what potentially might be assesed as relevant in a market where the smart value based long term investor, who usually buffers volatility in big corrections by buying, is now sitting on his hands.
Further to which Buffets view on the dollar and desire to europeanise his currency exposure further provides a host of possible repercussions if US investors see his move as acceptable as opposed to unpatriotic and start giving preference or even just a higher priority to foreign stocks and currencies over domestic. Hey its Ok to dump Fords and buy Euro and Jap cars what next ....dumping Coke for Nokia.
IF US buyers bought european and the dollar remained weak we might even see a period of non correlated EU indices to US indices this could make for interesting equity spreads neutral equities Long EU/UK short US stocks. The possibilities of a Bell wether opinion maker Like WB are actually endless. I am not a journalist trying to grab headlines by prodicting pure meltdown while a possibility, I do think Volatility and downside with sideways congestion all may become more prolific.
I see the article as having possibly endless repurcussions in varying degrees of influence.
It may help those who like a prevailing Fundamental undertone to bias the emphasis of the trading, say more spec on the long side than position etc..
Enjoy building the macro model of outcomes and happy trading off of it. But don't ignore this development.
TB
