January Was Named for Janus

Janus, a God during Roman times, had two faces looking in two different directions, and boy has he been playing rough this month! Unfortunately the direction of the markets in January has been the down, down, down direction. Again we've seen earnings weak in the financial sector, with more and bigger writedowns from the credit crisis.

The credit crisis that we've seen unfold in the last several months has occurred due to lack of faith in how assets were priced in the mortgage market, collateralized debt obligation market, the collateralized mortgage obligation market, etc. Basically, because the "faith" aspect vanished, the market for these securities vanished with it, and with no one on the buy side of the equation, the banks and investment banks have been forced to "write down" the value of these securities, and *still* the valuations of these securities is questionable.

Our best guess as to what will happen is that there needs to be capitulation by CEO's! Yes, the CEO's, who are embarrassed and fighting for their jobs with the Boards of their companies, will need to *aggressively* write down assets each quarter as they "mark to market" the values of these securities. What will eventually happen is that the writedowns will be so big as to be actually conservative on the down side; in which case all the bad news will be out, the credit market will price this information in, valuations will improve, and then all of a sudden the banks will *re-state* a prioir quarter TO THE UPSIDE. When this happens 2 or 3 times with the banks, that will signal the bottom in the financials.