There are 75 million homeowners in the United States, and about 65 million have seen 100% gains in their homes from 2001 to 2005, & 40% of homeowners own their houses outright. Of the 60% of homeowners who have mortgages, 80% are prime mortgages, and 97% of those people are making their payments. Furthermore:

1. About 14% of the 60% of mortgages in the United States are subprime or alt-A; one might assume that a lot of those will go bad.
2. There are around $150 billion worth of mortgages at risk, so perhaps $50-75 billion of that gets foreclosed.
3. There is a $10 trillion mortgage market to absorb that $50-75 billion. Plus, there is $18 trillion in stock market value, $30 trillion in bonds. The Internet bubble bursting wiped out $7 trillion in 18 months.
4. 98.2% of people over 30 and college-educated are working. There has not been a reduction in consumer spending in any year since 1959. The same US consumer that continued to spend after the bursting tech bubble wiped out $7 trillion of net worth.
5. Finally, it’s surprising to note that in the US there have been 14 months in total when the economy has been technically in recession in the past 30 years. Any one might think it’s been 14 years in total, rather than 14 months, listening to the current gloom and doom…

 No firm conclusions yet, just some perspective on what has been the centre of the typhoon which has changed the nature of the post 9/11 world, during which time nearly all boatsd have risen with the incoming tide of liquidity and accompanying diminished risk-aversion.

Patience

“The big money was made in the waiting”. Jesse Livermore

“You do better to make a few large bets and sit back and wait. There are huge mathematical advantages to doing nothing. ” Charles Munger

Man’s greatest invention? “Compound interest.” Albert Einstein

Warren Buffett says he is getting more calls these days, albeit as he says, in classic Buffett-speak, ‘from a low base’…

Of course, he never shows his hand until it turns up at the next SEC filing on the SEC website. So no one knows whether he thinks Countrywide Credit, or the market in general, represent good value, in his eyes.

What we know is that when shares trade near to intrinsic value, usually this is a good time to be thinking about buying. Recently, we have started to see a few of these, especially among the small cap sector.

Turning to the FTSE 100, we would say from a timing point of view…’tempting, but perhaps not quite yet’ - If you look at the current price action relative to the major fall on and around July 26th, it’s fair to conclude, we think, that ‘we’re not there yet’. A decisive timing driven allocation move into the market here would have a major element of guesswork about it. On the other hand, for long term considerations, over a 3-5+ year horizon, the ‘Buffett camp’ view (very intrigued by the sudden value appearing here, there & everywhere) probably makes a great deal of sense. To adapt one of our Nebraskan sage’s aphorisms, markets vote in the short term, then they weigh in the long term, having forgotten who they had voted for originally.

Are you a voter, or a weigher?

http://arcturus-investments.co.uk/2007/07/07/global-leaders-cisco-systems/

This was our earlier note on Cisco who today reported stellar numbers, upgraded growth forecasts and crossed the threshold for the first time in their corporate history as non router sales surpassed router sales. It’s taken 5-7 years, but Cisco are genuinely back in the driver’s seat.

David Roche writes in a compelling artcicle in today’s FT about the changing liquidity landscape that in his view, we are starting to see. Focus points of the article include: the stock of all global assets and related funding is estimated at 10 years of Global GDP; the ‘new monetarism’ of today’s markets driven by securitised debt and derivatives, rather than central bank policy; the nature of risk has changed as derivatives have spawned more credit, loans have shifted off bank balance sheets and into a diversified pool of investors; more credit equals more liquidity; the insurance function role of derivatives whereby risk is ’sliced and diced’, freeing up banks to make more loans; the growth in liquidity mirrors closely the exponential rise in asset prices with lower volatility; the drivers of credit are 1. risk appetite 2. long term cost of capital 3. low volatility.

David Roche sees all three of the above drivers as vulnerable to change. This is the ‘three bears test’.

6 Aug 07: From a momentum analysis standpoint, there is precious little signs of stabilisation on the FTSE-100 to hang your hat on for the time being. Yet a sharp counter rally could of course ensue with little warning. However, it is worth noting that we saw three ‘tell-tale’ signs of trouble brewing in recent months, so waiting for at least one or two positive indicators would the minimum before becoming more positive on the FTSE-100 on a 6-9 month view.

isf_060807_2_d.pdf