Sobriety Can Be Hard

I just returned from a trip to Cabo San Lucas, and I have to say after not a drop - the City looks different when not seen through tequila-laden eyes...

And so do the rating agencies when seen through the reality of the underlying credit rather than the "mark-to-model" numbers that seemed all-so-convincing as recently as May. It turns out that the "ratings" given to the senior tranches of certain CDO securities were more of a mirage than a reality, as the underlying mortgage credit has continued to weaken across the country.

Moody's, S&P Lose Credibility on CDOs They Rated

The last few days have continued the downward spiral that started with these CDO's early in the summer and now is spreading to global equities, as the reality of a deepening world-wide credit crunch is becoming more clear. As I feared in my post last Monday the rebound before the Fed did not move apparently was nothing more than a brief pause on a continuing downward trend.

One of the most surprising data points that continues to be discussed surrounds the massive negative moves in so-called "quant-based" hedge funds over the last couple of weeks.

Goldman, who's funds have perhaps been the most visible of the sufferers, with clear eyes and looking into the midst of the storm, agreed to re-up its commitment to the strategies by committing "$2 billion of its own money" and into one of its losing funds according to Bloomberg:

Goldman Fund Cuts Fees to Woo Investors After Loss

The fact that Goldman is being joined by Perry, Greenberg, and Broad - some of the savviest investors of our time - suggests that perhaps there is opportunity to be had in keeping a level and clear mind in the midst of the recent volatility.

I continue to remain cautious and selective - but I also continue to dive in where clear opportunities present themselves...like enjoying a mexican sunset with open eyes.