Wednesday, 13 August 2008

Repeat After Me: This is Not a One Year Event

Regular readers, (do I have any of those?) may recall a post I made back in October of last year titled; Repeat After Me: This is Not a One Quarter Event. At that time, writedowns by financial institutions were seen as one-off, short term interruptions to business as usual.

My suggestion was at the time that it would take much longer to play out, and here we are in the midst of 3Q08 and we have more evidence that things continue to deteriorate and hence the title of today's post.

On Tuesday JP Morgan visited the SEC confessional revealing that it took a $1.5 billion write-off on mortgage-backed securities and loans. The company commented that;

"Trading conditions have substantially deteriorated versus the second quarter,"

Also owning up to more pain was UBS which recorded its fourth straight quarterly loss on sub-prime related writedowns. The company said in a statement that;
UBS does not expect to see any improvement in the adverse economic and financial market trends'' in the second half of the year, the bank said, adding that it will continue to reduce staffing, costs and risky assets.

So now that you know this is not a one quarter event, but I'm here to tell you this is not one year event either, it will be several. The important point for stockmarket investors is, when will all this be priced into the stockmarket? Of course noone knows the answer to that, however I think it's safe to say, not yet.