Friday, November 28, 2008

Has Anything Bottomed Yet?

Is there anything worth buying? Style, sector, or otherwise? Let's look at homebuilder stocks:

The big American homebuilders have dug themselves into a hole from which they may not emerge for years. Having been abettors and subsequently victims of the U.S. housing bubble in the early years of this decade, they may be the last to profit when buyers finally return to the market.

Okay, so homebuilders are still not a good buy yet. What about REITs? Maybe they'll be on sale soon:

The full scope of the housing meltdown isn’t clear and already there are ominous signs of a new crisis — one that could turn out the lights on malls, hotels and storefronts nationwide. Even as the holiday shopping season begins in full swing, the same events poisoning the housing market are now at work on commercial properties, and the bad news is trickling in.

Uh-oh, looks like they've got farther to fall if commercial mortgages go massively bust. What about emerging markets? They're down quite a bit:

This has been a painful year for investors all around. Nowhere is that more apparent than in emerging markets, where the average fund is down 64.6% in 2008, according to Lipper.

Hmmm, now there's an intriguing bit of data. A decline of almost two thirds for an entire style presents the possibility of a bargain acquisition. "Decoupling" is a controversial theory that some parts of the global economy can do well even while other areas are in recession. It's not a fully mature theory, but my take on it is that even in a global recession, some regions may do less poorly than others for a number of reasons. Some emerging nations are looking for macroeconomic solutions that don't depend on a revival of U.S. consumer spending. China's fiscal and monetary stimulus is one hopeful factor. Other emerging economies, like Malaysia, may follow suit to stimulate domestic demand.

I've written uncovered calls on VWO for several months. VWO is an intriguing vehicle not only for its low cost but also its dividend, something you may not get from every emerging market stock or actively managed mutual fund. Perhaps it will soon be time for me to go long VWO.

Nota bene: Anthony J. Alfidi is holds uncovered short calls on VWO at the time this commentary was published.