Drinking Beer in a Madhouse
Wednesday, October 29th, 2008
Let’s assume you own a pub through which you’re selling 1,000 pints of beer a day. Unfortunately the general economy is weakening a bit and you might only be able to pour 980 drinks. Would that be a good reason for you to panic and sell your business for 60 or 80% below the current value? If you answer with yes you’re probably reading this message in a monkey house, and we wish you a nice stay there.
But this fruitcake behavior is the accepted reality in the commodity and stock markets where supposedly rational investors have munched too many magic mushrooms. As we’ve opined in our last message, when people lose their heads it’s time to start buying. The time, we think, is now. Get into the market, buy blue chips in stages and look forward to a little Christmas rally. Of course we still have to look across our shoulders because here and there guys are still screaming “Fire” and some people might be trampled in the recurrent mini panics.
At Xam Capital Ltd. we have been bears for a very long time but yesterday we started buying in a meaningful way. We certainly put our money where our mouth is.
Regarding the German market and the fantastic voyage of Volkswagen shares we don’t shed a tear for the hedge funds which lost their shirts ( and underpants too ). We all knew that there is this oddity of so-called cash settled options in the German market ( see recently the Continental/Schaeffler case ) which enables predators to buy up companies without announcing that to the world. This makes it possible for speculators like Porsche to make billions of euros by manipulating share prices. Our guess is that a few others might try the same trick ( until it will be outlawed ). Daimler, for example, would be a perfect target.