Geoff Cutmore - Morning Thoughts

Buy the Dips?

Should you be getting ready to buy the dips? Sounds more sensible than trying to forecast shark attacks.

Another day of earnings and another day of strong numbers. In all this fear about subprime contagion, where is the clarity of thought? A recent e-mailer berated the “Squawk Box Europe” team for not talking more about the losses in some very high-profile hedge funds run by very smart people. I suspect the correspondent may have lost some money. Of course we are talking about it. My fingers are blistered from writing shrill headlines about credit market risk. But that ain’t doing the investor much of a service.

After all, predicting the next big hedge-fund failure is like forecasting shark attacks. It’s going to happen. If swimmers share the water with sharks some are going to get bitten and those swimmers that engage in the most risky behavior are increasing their odds of a fatal attack. However, attacks are relatively rare and notoriously hard to predict, and when the initial shock is over among the community of swimmers, everybody piles back into the water like nothing happened. End of shark analogy. If you swim with the sharks, you take your chances.

A deteriorating credit market on the face of it is a bad thing. But corporate balance sheets appear in good health and quite frankly the U.S. and U.K. consumer don’t need easier money right now. So this is a wobble in the leveraged lending market. As such, it doesn’t undermine the global growth story, or the arguments for equity ownership.

Our guest host this morning, Charlie Morris, who runs an absolute return fund at HSBC, says he’s looking to buy, probably in October, when markets are lower as they have worked through credit worries. Areas he will continue to avoid are financials, real estate and Japan. He hopes to buy industrials, energy and materials that have a negligable exposure to financial areas of the world.

In a nutshell he is defensive, preparing to buy.

Feedback welcome - here.