Spring Is Finally Here

It is hard not to be optimistic on a day like today. 60 degrees and sunny just sets a nice tone. May help to explain the creativity and entrepreneurship of Californians.

Well, it looks like the optimism (or muted optimism) is spreading to
Wall Street with Goldman’s head honcho today staying we are in the “third quarter” of the crisis. (here is the Bloomberg Article: Goldman’s Blankfein Says Credit Crisis Close to End).

Such confidence is not only helpful to hear in terms of market sentiment, it is also a nice contrast to the more pessimistic tones reflected in the below post as well as that echoed by the IMF yesterday, which suggested that losses will rise from the current $230 billion to close to $1 trillion by the time we are all said and done.

The most pessimistic number I have heard came in my Investment Management class at HBS, where John Paulson, manager of Paulson & Co, suggested that losses will likely reach ~$1.2 Trillion before the end of the crisis. Mr. Paulson (no relation to the Treasury Secretary) made $15 Billion in profits last year for his investors (with returns approaching 700% for one of his funds) primarily by betting against Subprime ABS securities.

Here is an article discussing his success: Trader Made Billions on Subprime. His bearishness not only turned out to be correct, but it was also very profitable.

What the ultimate losses will be in this crisis will come down to a variety of factors, but I don’t think one should underestimate the importance of confidence and optimism.

So bring on the sun…or move to California.

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