Meredith Whitney On Our Worsening Liquidity Crunch

Ms. Whitney reminds us that as enormous companies fail, we lose liquidity, which puts further pressure on asset prices. She says that $3 trillion less liquidity is flowing through the market as compared to last year. She also mentions that banks will need to reassess their writedowns going forward.

Maria Bartiromo: (regarding financial stocks) …is it fair to say that all of these names are going to be able to be bought at much cheaper levels?
Meredith Whitney: Much cheaper levels. I’m surprised the equity market is doing so well today…. (!!)

You can watch it here. Highly recommended.

I am still hearing many people talking about buying stocks here, and have been asked by friends whether we are near a bottom. I don’t think we’re even close.

As an related example, Toll Brothers (TOL) investors do not appear to be panicking. Indeed, yesterday there were an abundance of buyers, whose thought process must go something like this:

1. Fannie (FNM) and Freddie (FRE) just failed.
2. Lehman (LEH): failed.
3. AIG (AIG): ditto.
4. I think it’s a good time to buy stock in a homebuilder!

Here’s the TOL chart. I am short TOL, DHI, and PHM, and long SRS.

As I run through charts, so much looks damaged but oversold, which makes for tough trading. I will be shorting the bounces, with a focus on housing, real estate, consumer sectors, and financials. In each of these sectors, there are many stocks still high above their July lows. There are loads of retailers, homebuilders, and regional banks that are just starting to break down.

Gold made an amazing move today. I’ll be looking for a pullback before considering a long position.

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