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Feelings of Dread

By Rick Walter

Well, the market has really been showing strength- up over 200 points since October 5, 2009. I think the bulk of the buying are from hedge funds and institutions alike, snapping up assets that they may deem still cheap or it could be because of an overall feeling by market participants that fundamentals are improving as the FDIC gets its Private Public Investment Fund program underway with a recent announcement of multiple bidders for purchase of distressed assets from recently failed banks.

However, somewhere and somehow, I still have this feeling of dread. I fully understand that the process of removing distressed assets from banks and other financial institutions balance sheets will allow banks to become more healthy which in turn will help loosen up the credit markets for new deals, which in turn will help revive the economy, but many of these assets are being sold for pennies on the dollar. In addition, there are still so many other technical and fundamental problems with the economy such as the commercial real estate markets which maybe coming under new pressure as the market is expected to experience a wave of defaults shortly- take a read on what may happen to this high profile apartment complex deal that's gone sour- "Stuyvesant Town apartment complex on Manhattan's East Side in danger of imminent default."
I was wondering, how will firms that buy into pools of distressed assets from the FDIC make money for their investors? I am still trying to figure that out. Will the new offerings have some type of new super toxic rating? How long will you have to hold these toxic investments? Of course, I am only skimming the surface of the real issues but it's all so unsettling. In light of my feelings of dread, I will continue to recommend safe to moderate conservative investments, just in case the worse happens in the coming years.

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