Financial Collapse?

Seems that principles may be trumping common sense today with the failed deals to back Lehman and AIG. It's not wise for the Fed and U.S. Treasury to give a lecture about moral hazard on Deck 5 as the Titanic is sinking.

Only one group has the credibility to prevent the collapse of significant U.S. banks(and later others in Europe) -- the Fed and U.S. Treasury. It appears that fear of indulging moral hazard (a principle) is prompting the Fed "to teach banks a lesson" today by allowing Lehman to collapse.

Lehman was the oldest bank on Wall Street. Lehman was relatively trusted and honest. Although it's true that Lehman has been circling the drain for a year -- see our prior blog post.

The core problem is that government economists assume people are rational. They assume that lessons will be learned and trust will be acquired by the most honest.

I'm from a psychiatry background. I don't think I've ever met a rational person. People respond to some rational direction for a while, but over time they are more likely to respond to incentives. The incentive structures on Wall Street (dictated by the Fed, Congress, and the SEC) are seriously deficient in this understanding of endemic irrationality and the limitless nature of uncontained greed.

The initial prevention was to impose adequate regulations (in advance) that would account for the lack of responsibility and short-term incentive structures on Wall Street. People are people (especially on Wall Street), and they will grab as many cookies from the cookie jar as possible if the lid is left open.

Lecturing Wall Streeters after they get diabetes is not helpful. Their diabetes has become contagious, and is infecting anyone within sneezing distance.

Locking the cookie jar, or limiting the outflows, is the only prevention. But it's not a solution now. We all have diabetes now, and we need our financial insulin (so to speak). But the private sector has run out of insulin.

The counterparty risk of Lehman's intertwined web of positions is unknown ($2 trillion in interrelated positions?). And that will spook the markets for weeks if not months as the carnage is sorted out (if it can be). Worse, the markets will continue to suffer as the disease spreads.

One thing I haven't seen in my (admittedly short) lifetime is fear that swelled into panic that caused a global financial collapse. I still haven't quite seen it, but we're getting close if no one (ahem, FED!!!) steps up to back the sagging real-estate linked assets of AIG and Lehman.

When ideology trumps practicality at the highest levels of policy making, we're all in trouble.

The Hong Kong government supported the Hang Seng in 1997 to prevent collapse, and it profited handsomely when offloading those shares (bought on the cheap) many years later. There are precedents for government support to excessively fearful markets, to restore confidence. With mortgage-related assets so cheap (and no willing buyers of size), and with the goverment inextricably bound to insure the performance of many banks anyway (through the FDIC), it makes little sense for the Fed and Treasury to dither.

Safe Investing!
Richard

MONEY-MONET!

I was on CNBC on Thursday, which I enjoyed immensely. (Clip here). They wanted a "shrink" to provide commentary of the current market psychology. We know people are jittery these days. How could they not be? But we also know that panic costs people money big time. So how do you get back to the proper perspective?

Well, start by checking out the picture above. What does it look like to you? If your answer is "not much", than you have something in common with the vast number of investors viewing the market's behavior the past couple of weeks.

The photo above is a painting by Claude Monet. Monet was the founder of a new style of painting, French Impressionism. The style is marked by, among other things, "open composition" and "visible brushstrokes". What that translates into (apparently) is "make a bunch of dots and the dots become a picture."

Here's the thing to remember: A portfolio is like a Monet. If you get too close to a Monet, all you see is a bunch of dots (a phenomenon comically illustrated in the movie Ferris Bueller's Day Off when he goes to the art museum). The same is true with our portfolios. When we get too close, we see nothing but a bunch of dots. It's data devoid of context. The picture makes no sense, and when it comes to our investments, that's scary.

The key to appreciating a Monet or a portfolio is viewing it from the right distance.

(Waterlillies)

This means resisting the constant pull to look at our investments from a weekly... daily... (minutely?) framework. If you look at a chart of the past month, it will provide a frighteningly volatile picture of big ups and bigger downs that may induce a feeling of motion sickness. If you look at a chart of the past 20 years, it is much more likely to produce what Glenn Frey would call a "peaceful, easy feeling". Volatility is not the same thing as risk, if you have the right time horizon. Perspective is everything.

I'm speaking of course not only about the distance of time, but of emotional distance as well. When we get "too close" emotionally to our portfolios the result is the same. This is one reason why working with a financial advisor (or failing that, an investing confidante) can be so valuable. Sometimes we need someone to tell us, "Take a step back".

Like Sisyfus rolling his stone up the hill in Hades or me organizing my desk, it is a neverending battle because, as humans, we are constantly, unconsciously and inexorably and being drawn into a short-term focus. (It's happening right now. Seriously. It is.) That's the side effect of paying attention to our world and we can't help it. But if we can make ourselves aware of it, and that gives us a fighting chance.

How do you keep yourself aware?: Reminders. Whatever works best for you. One option would be to get yourself a Monet print to hang in your office. They're cheap, they're easy to find, and they make a nice reminder of how we can't appreciate our portfolios if we don't have the proper distance.

Plus people at work will think you're "classy". Which is nice.

Psychology 101: Investor Panic! ... Time to Buy?

The U.S. stock markets have dropped 4% this week, and investors' fear levels are near the yearly highs set in March. Investor psychology is a funny thing -- but it's predictable -- and understanding it can make you a lot of money.

We've been mentioning in our blog posts over the past 2 months that as the stock market has gone higher, investors have grown more and more nervous. They have felt inclined to sell to "cut their winners short" just to lock in their gains so far. A brief market sell-off is exactly what drives investors to feel afraid when they've already made so much money.

Let me offer myself as an example. Every 6 months I create a 10 stock portfolio using a basic Yahoo! stock screener and a little due diligence (calling company CFOs, reading SEC filings, etc...). Takes me about 8 hours to complete the whole process, and the average return has easily been over 20% annually. Here are some of the older portfolios (which I stopped posting after 2005 due to time constraints). This January's portfolio is already up 25%. Which is obviously better than anticipated.

Frankly, that 25% 8-month return scares me. My account is 25% larger in only 8-months. Wow, it feels good. However, like almost everyone else, I want to take that money off the table so I don't lose it. I'm susceptible to cutting winners short. Why don't I? Because I know that my nervousness is not a trading plan, it's a road to underperformance.

Using our Marketpsych sentiment analysis tools, we've been watching the pain level rise over the past week. See this Marketwatch article (which mentions our Investor Pain Index) for a few details. The chart below was generated using our real-time proprietary sentiment software and it is plotted against the QQQQ (Nasdaq 100 ETF):
This chart shows the relative amount of pain measured among investors.

As you can probably see in the chart, the last time pain was so high was a great time to invest. So consider using stomach-churning pain as a Buy indicator. You don't need to "catch the falling knife," but you may want to enter buy stops slightly above the market, because any "relief rally' will be fast and furious.

Personally, I think the pain will probably spike again (and the market will sell-off), in a second wave, before a real buying opportunity presents itself (August and Spetember are yet to come). Consider investing some idle cash during an August sell-off, although also consider somewhere safer than the US dollar (e.g. Singapore or Malaysia) when those markets get hit.

Best wishes,
Richard

Sell in May and Go Away

The 2% drop in the S&P500 last week brings to mind the old Wall Street aphorism - "Sell in May and Go Away." The assumption behind the saying is a solid one -- the summer action in the markets is generally unproductive for investors. Recent academic studies lend credence to this saying.

A small study I did for the 14 years from 1994 through 2004 yielded the following monthly average returns for the 10 largest Northern Hemisphere stock markets:

When you look out further in history, as the authors (Ben Jacobsen and Sven Bouman) of an excellent 2001 study have done, the data supports the "Sell in May and Go Away" pattern: "Surprisingly, we find this inherited wisdom to be true in 36 of the 37 developed and emerging markets studied in our sample. The 'Sell in May' effect tends to be particularly strong in European countries and is robust over time. Sample evidence, for instance, shows that in the UK the effect has been noticeable since 1694." The study shows that, on average, a buy-and-hold investor would do approximately as well as a "Sell-in-May-and-Go-Away" investor (holding stocks from November 1st to April 31st).

Other researchers have theorized that this effect is biological in origin. In the paper "Winter Blues: A SAD Stock Market Cycle" the authors find that the seasonal effect is more pronounced at higher latitude stock markets (such as Stockholm) where sunlight waxing and waning is more pronounced, and it is inverted in Southern hemisphere stock markets (such as Sydney) where seasons are reversed. In fact, a Stockholm to Sydney portfolio rotation (to match the late Fall to early Spring cycle) earned over 20% annually. Investing in each market (Stockholm or Sydney) alone throughout the year earned about 13%. The authors point out that "Seasonal Affective Disorder", a type of depression that is most pronounced in the late summer and early fall, has a similar cycle as the stock market.

In a more recent 2005 study, the seasonal effect was found to be pronounced worldwide in IPOs and earnings revisions, as if investors' expectations become overly optimistic during the Fall and Winter and then come back to reality in the Summer. This hypothesis of optimism fits with the biological hypothesis, as increased optimism is a hallmark of increased seasonal serotonin and dopamine levels in the brain.

All of these studies indicate that the old aphorism may really be true. Summer is an excellent time for reflection and research, and it will only rarely be a peroid of high returns.

Richard

The News is....Do the Opposite of What the News Says

I was pleasantly surprised to see the US markets up substantially today -- "the biggest one day gain of 2007" the media report.

To what do we owe this great day? Well, if you follow the daily financial media reports, then you'll see a few reasons put forward for the price jump -- declining bond yields, increasing retail sales, and diminishing concerns about inflation.

But that's today. Yesterday, per the financial media, investors were frightened when the 10-year bond yield symbolically breached 5%. According to the AP Business Wire today: "Rising bond yields amid inflation concerns had been pummeling stocks since last week."

Too often, the media is unhelpful for investors. Explaining events after the fact means little for future prices. In fact, future prices tend to do the opposite of what the news implies.

When the media is negative is actually the best time to buy. The chart to the left demonstrates how negativity in the media, this time around 9/11 and the war in Afghanistan, was inversely correlated with market returns. I quantified negativity by counting negative words (fear-related) in the Nightly Business Report online transcripts. A simple regression analysis found a significant inverse correlation between the prevalence of negative words in a transcript and the market's performance over the next week. No offense Paul Kangas and Susie Gharib, but your broadcast is useless for the average investor.

By the way, the above chart appears in my upcoming book, "Inside the Investor's Brain" (available from Wiley on July 9th).

When amateur investors hear the media experts predict a slowing economy after a sharp drop in the market, they get scared. When scared, they are more likely to sell. The financial news is better avoided by sensitive investors - those who might get scared at exactly the wrong times.

The media has numerous rationalizations, on a day-to-day basis, for the market's volatility. Beware. Paying attention to this information can be detrimental to your wealth.

Richard

Like the Kids Say... OMG,TMI!

There's and old expression; "A little bit of knowledge is a dangerous thing".

I'd like to add a corollary; "and so is a lot".

I was curious to see what the Market would do on Monday (June 4, 2007), because of the two events that occured on the weekend: 1) The Shanghai Composite dropped 8.3% and, 2) A terrorist plot to blow up JFK airport (and much of Queens) was nipped in the bud.

Truth be told, I was hoping for a nice big drop so I could go bargain hunting. But it was not to be. Perhaps because enough people shared my reactions; 1) The Shanghai Composite is a small and not terribly significant market that is nearly 70% comprised of small Chinese citizen investors - it shouldn't matter that much to us; 2) Oh, terrorists are hatching plans to blow up New York? Really? Tell me something I don't know.

And The Market shrugged. (Damnit)

So it didn't create the buying opportunity, I'd hope for. What it did do was call to mind our strange and paradoxical relationship with financial information; that we want more of it... and that getting it usually hurts our financial decisions.

Knowing too much hurts a lot of our decisions. In his book, Blink, Malcolm Gladwell details how Cook County Hospital simplified their ER triage. Their model eliminated all but four pieces of data to determine whether to admit a patient for a heart attack (electrocardiographic evidence, presence of unstable angina, fluid in the lungs, and a cutoff point for systolic blood pressure). Any additional data - even data that look relevant such as weight, age, etc. -- and the decisions got worse. To borrow an expression from teen-speak, it's "TMI" (Too Much Information.)

No one has understood or exploited the human mind's unhealthy relationship with TMI better than the Gambling Industry.

Ever been a horse track? The helpful track owners provide information on lap times, finishes in previous races, breeding, performance in mud, or rain, on grass, on dirt, the record of the jockeys... they give you literally 100s of different variables to factor into your decision. Does it help? No! It's TMI. Many data points are simply red herrings. But the relationships between the variables are too complex, and the sample sizes usually too small, to make any meaningful conclusions anyway.

The gambling industry knows that most gambling information is specious; it looks important, but is useless for prediction. Sometimes they even know that we know. At a roulette table, the board above the wheel posts the last 20 or so numbers that came up. Nothing could be more irrelevant, and only the most naive player doesn't understand this. But people actually pay attention to what happened before! They love it! "Oh, look. It hasn't hit # 23 in a while!", or "It's been black 4 times in a row now!" Seeking TMI isn't just a human inclination, it's fun!

So what of investing? With Blackberries, Real Time Market Quotes... Jim Cramer, we have more information than we know what to do with. And it's available any time. How do we sift through the haystack of data to find the needles or relevancy?

It starts with an understanding that much of the information we encounter is like that on the roulette board - interesting, but irrelevant. It also means recognizing that, even with quality information, you can have too much of a good thing. Lastly, we can recognize that information that is Frequent, Emotional Evocative in content, and Recent are most likely to be overly influencial in The Market's short term decision-making. (I would say that the terrorist plot meets the last two criteria and the Shanghai drop meets all three). It's a great way to spot short term buying and selling opportunities.

Simplify. Avoid TMI.

A Bull in the China Shop: The Fundamentals of the Worldwide Share Rally

We're in the midst of the biggest bull market in history. Virtually every asset class has been yielding double-digit percentage gains annually. Here in the United States, the boom is less obvious. In Asia, it is unmistakable and profound. Since this is a blog post, not a book on economic history, I'll try to keep my commentary on this world-changing transformation brief. In particular, we'll go back to the subject of China, which I think will be the defining story of the next century.

Pundits cite numerous reasons for the boom, the foremost of which is a liquidity glut. One explanation for the "easy money" says that as Asian and Middle Eastern nations receive US dollar payments for their trade with the United States, and they have enormous trade surpluses ($1 trillion in China's reserves so far), they are inclined to re-invest that money in dollar-denominated assets to avoid driving up the value of their own currencies. This buying pressure on T-bonds and T-bills leads to decreased interest rates and easier credit for business expansion worldwide.

The general idea is that lower interest rates make borrowing cheap. And who wouldn't borrow at 6% in order to invest in a business with a cashflow over 16%? That's a low-risk return of over 10% annually. Now multiply it times 4 using leverage (40% return), and you have a high-risk hedge fund or private equity fund at your finger-tips.

China alone is growing 10% per year. Many of its businesses are growing earnings 20-30% annually for the past 5 years, as evidenced in the China Stock Directory. Yet the Yuan is pretty stable versus the US dollar, so currency risk is low. Private equity funds can make a killing by arbitraging this type of interest rates to earnings differential. Makes sense that the Chinese government is a pre-IPO investor in Blackstone -- Blackstone gets preferred access to fast-growing Chinese companies, and China gets the know-how to set up a domestic private equity industry.

So there is a fundamental logic to the boom - that's my point anyway. But since this is an investor psychology blog, how can we know when bubbles form on top of booms? In particular, is China in a bubble? Some say that a PE of 42 for China Communications Bank is high, especially when HSBC has a PE of 13. Does a high PE alone mark the top of a bubble? Greenspan used the high PE = bubble logic when he insinuated the US market was irrationally exuberant in December 1996. His timing was way off, but it does have a historical logic.

In my studies of sentiment, tops are usually marked by high optimism. But so are the rallies on the way to the top. If you shorted every period of 2 standard deviations above average optimism over the last 20 years, you'd have zero returns. No matter how pessimistic you are, you have to admit that shorting optimism does not work without other objective criteria to go by.

In April, 5 million new stock brokerage accounts were opened in China. That is 2/3 more than were opened in all of 2006 (per the Economist magazine). That sounds like an investor frenzy. But guess what - they shoud be excited. China has been booming for 20 years, and the tipping point has finally been reached where domestic Chinese investors can chase hot stocks. It's healthy that people are getting involved. Does that mean they will emerge unscathed? No.

When will the psychology of the Chinese bubble become a problem? As I mentioned in a previous blog post, probably not until next year. So far the share prices have been rallying less than two years. While PE's are high in big name stocks, there are still some bargains in China(granted, many with murky accounting).

Even after last year's rally in the US (modest as it was), my stock screens found more cheap small-cap stocks this December than at any time in the past 3 years. And they are up 30+% since then. A rally does not prove a bubble, but it is necessary to one.

So the Asian economic boom is finally being followed by a real stock market boom (China and Vietnam in particular). This is good news, as it means their financial systems are globalizing. The selloff of May 2006 indicated that while some investors were skittish about the huge recent gains, the general trend remains extremely positive. This year is no different from 2006 in terms of economic growth in Asia, except that investors are finally catching on and assets are at or exceeding their fair values worldwide. Yet, they can certainly go further. There will be scary selloffs along the way (probably very steep), but they will be clearing the air for the next rally. Those are my thoughts at the moment. They may change at any time, as flexibility is the paramount virtue in the markets.

Next post we'll look at some recent neurofinance studies.

Richard

The Bugs Bunny/Road Runner Investing Hour!

Most of us remember growing up watching cartoons on Saturday morning.

I probably watched too much. It quite literally affected my ability to make sense of the world.

One of my favorites was The Bugs Bunny/Roadrunner Hour that featured the antics of a homicidal supra-genius named Wile E. Coyote who was obsessed with doing harm to a vocab-challenged Road Runner - the Moby Dick to his canine Ahab.

Of course, the coyote never succeeded. He got crushed, flattened and blown up every week. But he did teach us a fascinating lesson of cartoon physics that we can apply to markets -- particularly soaring ones.

In every episode, Wile E. Coyote would invariably pursue his elusive quarry off of a cliff. At this point, it became clear to the audience that the coyote was headed for a serious fall. And the more excitable among us were prone to yell things like, "Look out!" at the TV. The coyote; however, was blissfully unaware of his circumstances. In fact, breaking multiple laws of physics, Wile E. Coyote continued to churn his feet, levitating in the same spot, indefinitely free from all harm... until he did one thing; until he looked down.

Upon looking down, the impossibility (even absurdity) of his current status became clear. The coyote would gulp, usually produce a hastily assembled placard featuring the phrase, "Bye bye!" - and fall like an anvil into the void below.

Welcome to the world of investing bubbles. Welcome to Wile E. Coyote Sydrome (TM).

We've seen it before, throughout the late 90s when people were paying 200 P/Es for stocks based on metrics such as "eyeballs" ("eyeballs" is the new "earnings"!). The admonishments of the exasperated spectators (Julian Robertson & Dr. Robert Shiller come to mind), like those of countless children on Saturday morning, were there if you cared to listen -"Look out! You're going to fall!"

The Shanghai Composite has been running off the cliff for quite some time now. (I'm not saying you can't make money there. It's hitting new highs everyday, but if a market up over 200% in 2 years isn't a bubble... what is?) And the warnings coming from land are getting louder. But the coyote never listens. And he doesn't appear to hear Mandarin any better than English. He is far too engrossed in his pursuit to pay any mind anyway. But he'll look down at some point.

In the same way that the tragic coyote defies the laws of physics, investors defy the laws of economics, running on air as the market soars... 5%... 10%... 15%... I can't wait til next week!

But then the warning cries from the cliff break through to the investor's consciousness. And one looks down. (Sell). Then another. (Sell). Then another (Sell) and -- whoosh!-- (SELL! SELL! SELL!) -- the Panic, with its sickening plunge, is on.

And you don't need a sign that says, "Bye bye!" to know it.

Wile E. Coyote Syndrome (TM) at its finest.

So how do you approach this situation? Your wisdom (and high school physics) tells you to run back to land. But it's such a rush dancing off the ledge, and that's where the money is.

For one thing, do not underestimate human greed. Do not overestimate its reciprocal fear either. (Physics also teaches us that every action has an equal and opposite reaction, after all). Be prepared for both. Have cash available to pick the pieces off the ground. Anticipate the sectors to which people will flee. Run around on air for awhile, but take some profits too. Most of all, prepare yourself emotionally for the plunge, because its coming. And no one know when.

The great thing about ol' Wile E. is that when he gets smushed, flattened, and blown up, he bounces back good as new in the next clip.

Investors aren't so lucky. Raise your hand if you bought Intel at 90! (You can't see my hand, it's up.) In fact, many portfolios never bounce back.

So enjoy it while you can. Be prepared for the plunge. And you may want to consider shorting "ACME Gadgets Co." (Their rocket boosters have serious design flaws.)

What's Your Ben & Jerry's Investing Moment?

The market has been setting a new record everyday now it seems. The Dow Jones Industrial Average closed on Friday at 13,264.62, a new all time high. And the broader Standard & Poor 500 Index also closed at 1505.62, also a new all time high.

I had a conversation with a friend the other day who is an active investor, and I mentioned that I'm 20% cash. He was surprised.

"You don't need to be 20% in cash!", he explained. "You're not going to need that money for 30 years. You should be more aggressive!"

And he's totally right.

Sort of.

I could certainly stand to me more fully invested. After all, we're talking about a long term investing horizon. And as one who drank the Kool-Aid long ago on the long term safety of equities, I should be able to do so with confidence.

But here's the problem.

One's investing strategy does not exist in a vacuum. It is dependent upon one's Investing Personality. Modern Portfolio Theory does a great job of determining what asset allocation strategy will maximize your returns. But if that investing strategy is not consistent with one's risk preferences, emotional resilience - even attention span, it will succeed in theory, but fail in practice.

Think of it this way: Investing plans are a lot like eating plans. If you want to lose weight, there are any number of diets that will do the job. Barnes and Noble bookshelves are full of them. But what makes a diet right for you, is not whether it "would work" (heck, they pretty much all work). What makes the diet right for you is that it is the plan that you can stick to.

And like proper eating, we're not talking about a short-term, "look good for a wedding" type of situation with our investments. We're talking about following a lifetime plan of prudence and self-discipline. So any long term investment plan doesn't have a built in mechanism for those Ben & Jerry's moments is ultimately doomed to fail. That's why the right plan for me is a sub-optimal investing strategy.

They say that truth lies in paradox. Well here's one for you; I can't be aggressive without a more conservative asset allocation.

When I explained that (emotionally) I needed a decent chunk in cash, my friend assumed it was because I needed to know that at least a part of my portfolio was "risk free". Actually, that doesn't quite hit it.

It's not that the money is "risk free" (i.e., I can't lose it). In fact, the cash position for me gets mentally classified as a loss; I feel like I'm losing money by not having it participate in the rally. No. The reason I need that money in cash is entirely different.

I don't mind risk. In fact, I like being aggressive. But in order to be aggressive (e.g., take some more speculative positions), I need a sense of control. I need to know that if the market gets whacked, I have cash ready to take advantage of it. That way I can cognitively reframe a "bad day" (lost money) into a "good day" (got some bargains). If I couldn't do that, the bad days would overwhelm my portfolio and knock me off course.

For me, losing money only becomes emotionally intolerable when I'm unable to take action, when I can't reclaim some sense of control.

That's my wings/pizza/cheesecake moment. That's when I screw up my plan.

What's your weakness? What are the temptations that push you off your plan? We invite you to check out some of Marketpsych.com's investor self-assessment tools to determine where you (or your client's) potential vulnerabilities may lie.

In the meantime, eat healthy and enjoy the bull market.

Investor Fear and Liquidity

“The key to making money in stocks is not to get scared out of them.”
~Peter Lynch

The market volatility the last few weeks has led to media speculation about possible causes: China's late February market plunge, the precarious financial straights of subprime mortgage lenders, and the biggest baddest reason of all .... Recession. In a different market climate, such events would have had little impact. But the market price action is now driven by emotional investors. By understanding how investors' fear generally plays out during such times, one can act proactively (rather than reacting) to such emotional markets.

Markets worldwide have been booming. In fact, on February 21st during a trip to India last month, I met the head of Asian investments for one of the largest New York-based hedge funds. He confided to me that "nothing in the world is cheap right now." And that was true for every broad asset class. In fact, the conclusion of our conversation was, "Only volatility is cheap." And that's a frightening position to be in. Within 2 days of our conversation the Bombay Sensex index began its latest correction, to be followed shortly by the Chinese and worldwide sell-off.

Many pundits have identified the "global liquidity glut" as the force behind stock market and commodity booms worldwide. But what is liquidity, really? Liquidity represents confidence -- the sense that one can borrow and make a greater return on their investments than the risk-free rate of return. And what is confidence but the lack of fear?

Today's sell-off is an opportunity. Many people who recently acquired risky assets are heading for the exits. But like last May, soon there will be a great time to load up on emerging market bargains.

Hundreds of billions of dollars have been committed to private equity, venture capital, and stock market investments in emerging markets. These outlays will be made over several years and will support emerging markets generally.

However, as with every opportunity, it's usually when it feels the hardest to buy, that the best price is available.

Richard