Market in Transition and Equity Raises

I have been thinking and realizing over the last week that the market is at a tough spot. For some perspective, I remember hearing a lot of investors say things like the following: "I can't call the bottom so I won't try. I'm willing to miss the first 15-20% of the next bull market so that I have confirmation that it IS a bull market." My conversations with people lead me to believe that these same people are now very uncertain about what to do. They had the 20% rally off a bottom, but they are still hesitant. I have noticed my own tendencies are to want to buy on a pull-back when the markets are going up, but being afraid to buy when the pull-back is actually occurring. If I am bold enough to extrapolate my tendencies on the market, it implies that there are still a lot of potential buyers that are still waiting to buy. All this to say, we just had a rally but I don't think investors are convinced we are in a bull market, despite their comments prior to the rally. And for those who bought on the way up, or are just still holding old positions, it is tempting to lock in some of the recent gains. I still think we are in a new bull market, but these pauses make sense to me.

What I was really excited to see was some equity raises. Everyone saw that Goldman Sachs raised $5 billion yesterday, but unless you cover the financial sector you may easily have missed three other equity raises (First Niagara and Fidelity National yesterday and Chimera today). Seeing four financial sector equity raises in two days was a bit of a surprise; in the pleasant sense. The capital markets are normalizing under our noses. I'm still leery of Goldman's business model, but from a broader perspective, I'm very happy that other investors are willing to give them more capital.

And finally, I little aside. I was thinking about one of my favorite internet ideas again yesterday; Prosper.com. They are currently in a quiet period while they go through a registration process to sell promissory notes, but this is fine because I wouldn't lend money through Prosper.com quite yet. This website allows people to borrow and lend from each other through Prosper.com. As a lender, you are making an unsecured loan to a stranger based on their write up and some standardized data they have to provide. When the US economy loses less than 75k jobs in a month, I think it will be time to put some money to work here, based on the assumption that the most likely reason the loans won't be repaid is loss of income. At about -75k jobs, I expect loan performance going forward to be good, but interest rates still attractive.