6) Asset allocation.  The belief in a large equity premium led many to overweight stocks.  I have argued against that.  Now there are many who are finding the they have to start over, after bad equity returns.  There is no magic in any asset class.  Yes, equities do better than bonds in the long run, but only by 1-2%/yr, not 5-7%.

As for the arguments of Ayres and Nalebuff, only the most emotionally dead investors can live with levering up 1.9 times perpetually.  Most people panic.  They can barely deal with the volatility of the S&P 500, much less double that.

7) Mmmm… is it time to take on Bill Miller again?  Yeh.  Overweighting financial stocks?  That is quite a bet, and probably irresponsible again.  Here is my free advice — analyze your estimates of intrinsic value with commercial real estate prices 30% lower than today.  Aside from short-tail insurers, I don’t think you want to be overweight financials.

8 ) On the same note, many small and intermediate-sized banks face troubles under stress, particularly from commercial real estate lending.

9) I think we are in the second inning for declines in prices for commercial real estate, but perhaps the seventh inning for residential real estate.  So long as residential properties sell for less than their mortgages there is downward pressure on prices, because negative events lead to foreclosures, not sales.

10) How will derivatives be regulated?  That is the question.  Will it be as transparent as TRACE?  I doubt it.  The market is not that liquid.

11) Will the US Government likely get full value back on TARP buyouts? No, because they lack expertise at analyzing these situations.  They don’t know what a warrant is worth.

12) Will low-rate mortgages rescue the economy?  No, but many middle class people with equity will breathe easier after they refinance.  Also, some will buy homes, but who will have the downpayment necessary to qualify now that underwriting has tightened?  Not many.