It has been a while since I last updated my portfolio. My view of the market was bear since July and I never felt any confidence in increasing beta to my portfolio. Looking back it was a mistake but at the same time I was convinced the world was not going to recover that quickly from the recession.

I am still in that position and I believe a long agony is ahead of most developed market. The strong rebound was just the tree hiding the forest. Reforms in the banking sector around the world need to be implemented, governments need to increase taxes and decrease spending in order to bring their debt level back to more sustainable condition.

The long road ahead is going to be bumpy and growth will be sporadic to say the least. I am no Dr. Doom but I believe the world economy is not where it is supposed to be. For that reason I will change part of my portfolio decreasing weight of my commodities related stocks and adding more weight to defensive and domestic stocks.

It might sound risky if it happens that the recent pullback could be just some heavy profit taking from institutional. I would once again bet against the market. However, this time I believe fear is back in the market. Sovereign debts around the world are back in the headlines. Greece, Portugal, Ireland (all apt of the EU) are raising strong concerns regarding the EU ability to manage its own differences.

Here is the moves I will make at the end of the next trading session.

If you are reading this article I assume it is because most of you are already familiar with the recent news about Toyota Motors. It could end up being very detrimental to the company and the consequences could be disastrous in term of market share in Europe, China and the United States.

Let’s recall what happened. Recently there has been a few car crashes in the US involving Toyota cars. A few people died in those car crashes, which raised concerns since there was a similarity in the even leading to the crashes. The cruise control on the Toyota cars seem to stop responding and cars accelerated for no reason leading to an accident.

After verification, there was a malfunction in the gas pedal of the Toyota cars. Several lawsuits are filled against Toyota right now from families that lost relatives. So far, it is not so unusual and it is the typical procedures car makers have to go thru when something of that magnitude happens.

However, the issue here is that the defective gas pedal is used on millions of cars and Toyota has just decided to recall about 8 million cars around the world to fix the problem. Analysts believe it could cost $1 billion a month for Toyota if they can’t fix the problem right away. As much as it is costly to Toyota in terms of Operating Profit, the biggest trouble does not lie into the financial loss.

What Toyota is facing now is a loss of credibility. Toyota has been able to become the leader carmaker in the world because it has build very secure cars. The recent problem with gas pedal will damage dramatically its image and would open the door to Toyota’s competition. Already Honda, Kia, Ford and GM have declared they will use Toyota’s weakness in the short time to increase their market shares and weaken the Japanese automaker.

I have no doubt these four carmakers will be able to increase their sales stealing Toyota’s customers. In an industry where confidence is Key, Toyota’s problem with its gas pedal will have a lot of consequences for the future of the firm. It is not hard to understand that the auto industry is of the “monopolistic competition” type since most cars (except the hybrid) are identical at 95% no matter which brand you take (e.g: a Ford SUV is very similar to a Toyota SUV). Thus, consumers can easily change from one brand to another without much thinking.

On top of that I read this morning that the US Senate is asking questions about Toyota. Why would they do that? What comes to mind right away is protectionism. By doing so, senators are trying to encourage customers to buy Ford and GM cars. The United States is dedicated to keep its auto industry afloat and the recent announcement from the Senate is just another example of politics stepping in the world of business. I don’t like it but I understand it!!

The next few months will tell us if Toyota is able to regain customers’ confidence. So far, investors are worried given that the stock has tumble more than 15% in the past week and the announcement of the recall.

Mr. Kenji Tamura announced today a new regulation for consumer finance companies might be voted. The deadline to the 2006 regulation is a few months away. The voted regulation is very restrictive on companies like Aiful and Promise, which seems to come at a bad time when japan like many other countries are trying to revive the lending activities especially for consumer finance companies.

The consumer credit sector has been since 2006 under scrutiny and has experienced a lot of changes. To recall, before 2006 there were no limitation on credit loans to consumers and interest rates were as high as 30%. Companies were using ancestral techniques of persuasion to recover their money, which looked more like Mafia’s behavior to many.

In 2006, the Japanese government decided to get rid of these practices and implemented ceiling on interest rates. The decision devastated many consumer finance companies but it was a needed move by the government. I am sure you remember the tumble of many stocks, like Credit Saison, in 2006-2007 even before the financial crisis hit Japan. Even though, the Japanese government had given companies three and half year to implement the new legislation, investors decided to stay away from such stocks.

Recently, many market participants have expected government to ease legislation as the country is under threat of a long period of deflation. Stock prices for consumer finance companies have skyrocketed more than 50% in a few weeks. However, Mr. Tamura’s announcement is not as optimistic as investors would have loved to. It seems there is a 50-50 chance legislation would not be change. As a result consumer finance companies tumbled today in the stock market. Promise led the group with a fall of more than 6%.

It is a very difficult decision for the new Japanese government. If legislation was to change it would had more pressure on consumers, which goes against political campaign promises. On the other hand the lending activity on the archipelago needs to recover if the government wants to get out of deflation.

I believe if there is a change in the legislation it would be a big step backward for the government. There are probably other ways to revive the lending activity. I think it would be a wrong message to send the Japanese population …. But a positive one for investors!