Financial Catharsis

This is not the next title of George Lucas’ next Hollywood Blockbuster, nor is it even the title of some overpaid and underworked writer who claims to have not only a magic wand when investing but also in story-telling.

So what is it exactly? What does catharsis in our capital markets imply? It implies a lot and for the most part everything and anything in these markets whether looking at the equities, fixed-income or credit markets. Catharsis lurks and has an almost numbing glare to it. A glare that if you stare at too long, will pass you by as Warren Buffett so pointedly stated in his last interview with Charlie Rose in early October.

Wait for the Robin and spring will be over.

While performing his “public duty” as the richest man in the world (Let’s not forget), Warren claimed he was shifting his personal wealth, not including his shares in Berkshire Hathaway, entirely into U.S. equities, contingent upon current value and prices.

While we do know Buffett has pledged most of his Berkshire shares, net worth, to charity, he remains the greatest long-term investor and money-maker of our era.

So what does this all mean and how does this affect your money and investing, simply put what does “Financial Catharsis” mean?

Sticking to one’s own investment philosophy and framework requires discipline in both up and down markets but particularly more in today’s bearish environment. So merely reading the Opinion section in The New York Times or watching Buffett on Charlie Rose should not be the glare of light that gets your attention to start buying again, even if it is the Oracle of Omaha.

One as an investor must have a philosophy, a few sub-philosophies and a framework to succeed. Without these cues an investor is simply a sheep amongst wolves.

Really the best way to fight this market and assure oneself of a fair share of U.S. corporate earnings and dividends is to buy an index fund, namely the S&P 500 and never touch it again….ever.

Navigating the seas is difficult and so is finding “Financial Catharsis”. That is what these markets have been looking for and will continue to look for until a bottom is discovered and tested.

We are close if not already having reached this purification in markets. Just as winter ice thaws upon the sight of spring rays, so too are our credit markets, as interbank lending rates continue to thaw.

Today, EUR three-month Libor dropped 3bps to 4.96, a level which has not been seen since the Friday before Lehman Brothers collapsed and left many creditors very unhappy.

With legislation passed by Congress granting the Treasury powers to allocate $700bn tax-payer dollars into domestic and global financial institutions, the Treasury has the tool-kit required to rescue markets and be the glare of light—frantically shouting, Bottom! Bottom! Bottom!

Markets thought Bear Sterns was it. They were wrong.

Injecting capital into U.S. banks and with foreign governments leading the way, it can be inferred, fairly, that the markets have found at least some home, some light and even some “Financial Catharsis”.

Waiting for the bridge to be built is futile. One must cross first and take risk and support investment frameworks and philosophies.

Use Index Funds to capture earning and dividend power and buy at these depressed levels.

Navigate the storm, understand the seas and always stick to a framework. Discipline is key.