Global financial markets have taken steep discounts over the past week, in addition to falling values over the past year due to the unwinding of credit markets.
After weeks of hand-wringing and record declines on stock exchanges around the world, the US markets had the final say of the week and indications are encouraging that most of the selling may be over.
US markets were down sharply in the opening minutes of trading on Friday, with the Dow briefly falling below 8,000. But they quickly recovered and there was some stabilization, though the major US indices spent the majority of the day in negative territory. In fact, the Dow again touched the 8000 mark just before 2:00 pm.
In start contrast to recent days, however, the late-day trading was mostly buying rather than selling and the US averages finished with relatively minor losses. The NASDAQ, was, in fact, higher for the session.
Dow 8,451.19 -128.00; NASDAQ 1,649.51 +4.39; S&P 500 899.22 -10.70; NYSE Composite 5,704.00 -105.98
Asian and European markets finished with steeper losses, in the range of 5-9%. Traders are now routinely calling the selling "overdone" and "panicked" and some are actually advising clients to buy selected shares, though cautiously.
The Dow's final hour move was dramatic, gaining nearly 900 points by 3.40 pm before settling nearly 450 points below the day's high. Investors now seemed resigned to massive intra-day swings until there is some resolution to the crisis that has credit markets frozen, though there's somewhat of a consensus that the worst of the selling is behind.
On the day, internals were all over the map. Declining issues carried the day again, though by a much smaller margin over advancers, 3921-2659. The number of new lows was a shocker: 4341, roughly 2/3rds of all listed securities. Only 21 stocks attained new 52-week highs. Volume was extraordinarily strong, at the highest level of the past three weeks. We may have witnessed the final flushing out of weak hands and the initiation of some serious buying. There are bargains galore if one has the stomach for the extreme volatility.
NYSE Volume 2,929,366,000
NASDAQ Volume 4,203,839,000
Oil for December delivery took a massive hit, losing nearly 10%, down $8.63, to $77.99. That can only be seen as a huge positive for beleaguered motorists and homeowners who use oil for heat. Gold lost $27.50, settling at $859.00, while silver lost more than 10% in value, dropping $1.28, to $10.60. The losses in commodities are at one time reassuring, but also signaling deflation, which they have been doing since August.
With a meeting of G7 finance ministers over the weekend in Washington, any positive talk from that group could usher in a big Monday rally. Then again, market participants are still somewhat shaken and may not be ready to jump right back in straight away.
Friday, October 10, 2008
Thursday, October 9, 2008
PANIC: Dow Falls 678.91 to 8579.19
The Dow Jones Industrial Average, the most revered index on the planet, has been bruised and battered to a shell of its former self over the past month.
On September 8, the index closed at 11,510.74. A month later - just 23 trading days - it is nearly 3000 points lower, a decline of 25.5%, much of it occurring in just the past seven sessions.
From its high a year ago at 14,250, the Dow is now down a full 40%, with the other major indices in similar straits.
While the Dow is a narrow measure of only 30 "blue chip" stocks, the broadest measure, the NYSE Composite Index, is off 44% from its closing high of 10,301.49. These are 5-year lows, comparable to levels in 2003, when the economy was still recovering from the triple blows of the dotcom bust, 9/11 and a serious, though short, recession.
It is as though the last four years never existed. Many on Wall Street are today wishing that we could go back to 1999, when the biggest concern was whether computers and clocks would still be functioning when the clock struck 12:01 on January 1, 2000.
While the Y2K scare turned out to be more hype than holocaust, there's no denying the rapid descent of stocks and the seriousness of the amount of capital destroyed over the past 12 months. It's in the trillions of dollars just in the US, and worldwide, probably close to the order of $30-$50 trillion.
Dow 8,579.19 -678.91; NASDAQ 1,645.12 -95.21; S&P 500 909.92 -75.02; NYSE Composite 5,809.96 Down 496.39
Still, most of us have not seen any clear indication in our day-to-day lives of the collapse of financial stability. People are still driving around, going to work, getting paid and continuing pretty much as normal. The damage has been to investments, pension funds and 401 k plans. Also, people saddled with debt, especially those who bought homes at inflated values over the past 4-6 years and now have a mortgage worth more than the home they live in, are feeling pinched and afraid.
It is likely, if this crisis continues and "trickles down" to mainstream businesses and the general population, that a robust round of layoffs could be weeks or months away.
The real fear now is that pension funds of all kinds - corporate, municipal and state-run - could be caught in the downdraft and unable to meet their full obligations to retirees. if that unpleasant scenario occurs in many areas, we then will be facing the next great depression.
Thursday's selling was prompted by little more than an exaggerated level of fear. While indexes in the Far East and Europe were mostly lower, the US markets were battered far beyond the levels in other parts of the world.
Market internals were once again dreadful, with declining issues outpacing advancers, 5731-771, an 8-1 margin. There were 2857 new lows and just 13 new highs. According to that measure, this is not yet over, though one has to wonder just how the downturn can be any more severe.
Volume was once again quite elevated as the panic selling feeds upon itself. One particular item which may have caused part of today's decline was the lifting of the ban on short-selling financial stocks.
NYSE Volume 2,013,890,000
NASDAQ Volume 2,989,760,000
Commodities markets fared better, but still suffered losses overall. Oil slipped another $1.81 to $86.62. Gold fell $20.00, to $886.50. Silver gained 10 cents to $11.88.
While I had expected the bottom to form around 9500, I suppose, in hindsight, that after being entirely bearish for the last 14 months, I became bullish too quickly. I am continuing to reassess my position and today must admit that further losses in the stock market will undeniably lead to the most dire consequences.
We are likely months away from any resolution to the current condition. Despite the world's governments and central banks best efforts, more bank failures are on the horizon. The next shoe to fall after that will be announcements of massive layoffs by some of the world's leading companies. Today's extended declines puts the entire state of affairs in a more tragic perception.
On September 8, the index closed at 11,510.74. A month later - just 23 trading days - it is nearly 3000 points lower, a decline of 25.5%, much of it occurring in just the past seven sessions.
From its high a year ago at 14,250, the Dow is now down a full 40%, with the other major indices in similar straits.
While the Dow is a narrow measure of only 30 "blue chip" stocks, the broadest measure, the NYSE Composite Index, is off 44% from its closing high of 10,301.49. These are 5-year lows, comparable to levels in 2003, when the economy was still recovering from the triple blows of the dotcom bust, 9/11 and a serious, though short, recession.
It is as though the last four years never existed. Many on Wall Street are today wishing that we could go back to 1999, when the biggest concern was whether computers and clocks would still be functioning when the clock struck 12:01 on January 1, 2000.
While the Y2K scare turned out to be more hype than holocaust, there's no denying the rapid descent of stocks and the seriousness of the amount of capital destroyed over the past 12 months. It's in the trillions of dollars just in the US, and worldwide, probably close to the order of $30-$50 trillion.
Dow 8,579.19 -678.91; NASDAQ 1,645.12 -95.21; S&P 500 909.92 -75.02; NYSE Composite 5,809.96 Down 496.39
Still, most of us have not seen any clear indication in our day-to-day lives of the collapse of financial stability. People are still driving around, going to work, getting paid and continuing pretty much as normal. The damage has been to investments, pension funds and 401 k plans. Also, people saddled with debt, especially those who bought homes at inflated values over the past 4-6 years and now have a mortgage worth more than the home they live in, are feeling pinched and afraid.
It is likely, if this crisis continues and "trickles down" to mainstream businesses and the general population, that a robust round of layoffs could be weeks or months away.
The real fear now is that pension funds of all kinds - corporate, municipal and state-run - could be caught in the downdraft and unable to meet their full obligations to retirees. if that unpleasant scenario occurs in many areas, we then will be facing the next great depression.
Thursday's selling was prompted by little more than an exaggerated level of fear. While indexes in the Far East and Europe were mostly lower, the US markets were battered far beyond the levels in other parts of the world.
Market internals were once again dreadful, with declining issues outpacing advancers, 5731-771, an 8-1 margin. There were 2857 new lows and just 13 new highs. According to that measure, this is not yet over, though one has to wonder just how the downturn can be any more severe.
Volume was once again quite elevated as the panic selling feeds upon itself. One particular item which may have caused part of today's decline was the lifting of the ban on short-selling financial stocks.
NYSE Volume 2,013,890,000
NASDAQ Volume 2,989,760,000
Commodities markets fared better, but still suffered losses overall. Oil slipped another $1.81 to $86.62. Gold fell $20.00, to $886.50. Silver gained 10 cents to $11.88.
While I had expected the bottom to form around 9500, I suppose, in hindsight, that after being entirely bearish for the last 14 months, I became bullish too quickly. I am continuing to reassess my position and today must admit that further losses in the stock market will undeniably lead to the most dire consequences.
We are likely months away from any resolution to the current condition. Despite the world's governments and central banks best efforts, more bank failures are on the horizon. The next shoe to fall after that will be announcements of massive layoffs by some of the world's leading companies. Today's extended declines puts the entire state of affairs in a more tragic perception.
Wednesday, October 8, 2008
Stocks Continue Global Sell-Off
Spirits were lifted slightly this morning on news of an emergency rate cut by the US Federal Reserve which was coordinated with similar rate reductions in other major countries.
The Fed funds rates was cut from 2% to 1.5%. The Bank of England cut its rate from 5% to 4.5% and the European Central Bank ordered a 0.5% cut in its key rate to 3.75%.
Central banks around the globe responded by cutting the rates in concert with the US. China, Canada, Sweden, and Switzerland lowered their key interest rates, while the Bank of Japan issued a statement in support of the actions, though it did not immediately cut.
US indices zig-zagged across the break-even line finally capitulating in the final hour to finish with another in a series of heavy losses. Volume was high, especially in the tech-laden NASDAQ.
Dow 9,258.10 -189.01; NASDAQ 1,740.33 -14.55; S&P 500 984.94 -11.29; NYSE Composite 6,306.35 -82.03
The Dow Jones Industrials took the brunt of the decline, losing another 2% in value. The NASDAQ and S&P took minor losses, about half that of the Dow on a percentage basis.
By comparison, the US losses were minor. Euro-zone indices in France, Germany, Spain and Great Britain were pounded down anywhere from 5-8%. In the Asian nations, the carnage was even worse in some cases. Japan's major index, the Nikkei 225, took its worst one-day loss ever, careening downward 952 points, more than a 9% loss.
Still panicked, investors drove issues to new lows around the world though many commentators and analysts thought the onslaught was getting a bit overdone. Credit markets are still largely frozen, but damage has been fairly confined to the financial sectors. Governments are scrambling for a solution, only to find that this is an ordinary and proper course of events for the unwinding of an unprecedented global credit expansion. Now that it is contracting - the normal response - everybody seems to believe the sky is falling.
It's not. In the US, there have been no major failures outside of banks and hybrid financial companies. Smaller, regional and local banks report business as usual, as most of them were smart enough to shy away from exotic investments, 100% mortgage commitments, Alt-A loans, bundled derivatives and credit default swaps.
The real concern is over the enormous multi-trillion dollar derivatives market, which is nearly completely free of regulation, with parties and counter-parties spread around the globe. Nobody is really sure who holds contracts to whom, thus the reluctance for banks to lend to each other or extend credit to all but the cleanest, most secure borrowers,
It's classic banking gone wild, with the old adage that banks will only lend money to those who don't need it being amplified a hundred times in a thousand different places. With credit markets in such a state of fright and panic, the fear is that somebody will toss a match onto the pile by calling in some heavy, arcane debt, taking down a particular firm or financier and toppling the whole house of cards. With governments around the world throwing taxpayer money at the problem left and right, the potential for fraud and abuse also becomes prevalent.
It's a crisis all right, one caused by banks, to banks. As I have opined in the past, they are now ravaging themselves. The upshot of all this high-financial drama is that the high and mighty of Wall Street will be taken down a number of notches. Smaller, better capitalized firms with saner managements will eventually pick up the pieces and the slack and all will be back to some semblance of normalcy in the not-so-distant future.
Some small business owners have had lines of credit reduced or pulled completely, but generally, the wheels of industry are still turning, albeit a bit slower. Nowhere are we seeing banks calling in loans en masse and bankrupting companies. That may occur down the road a bit, but, again, the victims will be few and far between.
Some stocks are at ridiculous levels and have been unmercifully taken down as part of the scramble to exit the equity markets. For instance, Citigroup closed at 14.40 today, a level unseen since 1998, adjusting for splits. GE slid to 20.65, Intel is at 16.25, Bank of America closed today at 22.10.
On the day, a bit more distress from the internals. Declining issues outnumbered advancers, 4839-1687, a bit of an improvement over the past two days. New lows rocketed to 3221, against just 18 new highs.
NYSE Volume 2,106,070,000
NASDAQ Volume 3,576,052,000
If today wasn't the panic selling so often associated with market bottoms, then you might as well kiss your savings and retirement goodbye. As is often the case, the washout from the past two weeks has produced a massively oversold condition. Some stocks have fundamental value far beyond where they are being priced today. It's full-blown hysteria, and cool hands will surely reap the benefits of waiting, watching and finally pouncing. We should witness a number of rapid huge market gains, though they will be short-lived until some semblance of reality and value is brought to bear.
Commodities seem to be taking it all in stride, acting in a more orderly fashion. The December light, sweet crude oil contract closed today down just 28 cents, at $88.43. Gold gained $24.50, to $906.50. Silver edged higher by 39 cents, to $11.77 the ounce.
If the reaction on Wall Street is any indication, the markets should begin to settle down and begin focusing on 3rd quarter earnings - which may not help to averages much - though any positives will be greeted with enthusiasm by those who haven't already thrown in the towel or been thrown to the wolves.
The Fed funds rates was cut from 2% to 1.5%. The Bank of England cut its rate from 5% to 4.5% and the European Central Bank ordered a 0.5% cut in its key rate to 3.75%.
Central banks around the globe responded by cutting the rates in concert with the US. China, Canada, Sweden, and Switzerland lowered their key interest rates, while the Bank of Japan issued a statement in support of the actions, though it did not immediately cut.
US indices zig-zagged across the break-even line finally capitulating in the final hour to finish with another in a series of heavy losses. Volume was high, especially in the tech-laden NASDAQ.
Dow 9,258.10 -189.01; NASDAQ 1,740.33 -14.55; S&P 500 984.94 -11.29; NYSE Composite 6,306.35 -82.03
The Dow Jones Industrials took the brunt of the decline, losing another 2% in value. The NASDAQ and S&P took minor losses, about half that of the Dow on a percentage basis.
By comparison, the US losses were minor. Euro-zone indices in France, Germany, Spain and Great Britain were pounded down anywhere from 5-8%. In the Asian nations, the carnage was even worse in some cases. Japan's major index, the Nikkei 225, took its worst one-day loss ever, careening downward 952 points, more than a 9% loss.
Still panicked, investors drove issues to new lows around the world though many commentators and analysts thought the onslaught was getting a bit overdone. Credit markets are still largely frozen, but damage has been fairly confined to the financial sectors. Governments are scrambling for a solution, only to find that this is an ordinary and proper course of events for the unwinding of an unprecedented global credit expansion. Now that it is contracting - the normal response - everybody seems to believe the sky is falling.
It's not. In the US, there have been no major failures outside of banks and hybrid financial companies. Smaller, regional and local banks report business as usual, as most of them were smart enough to shy away from exotic investments, 100% mortgage commitments, Alt-A loans, bundled derivatives and credit default swaps.
The real concern is over the enormous multi-trillion dollar derivatives market, which is nearly completely free of regulation, with parties and counter-parties spread around the globe. Nobody is really sure who holds contracts to whom, thus the reluctance for banks to lend to each other or extend credit to all but the cleanest, most secure borrowers,
It's classic banking gone wild, with the old adage that banks will only lend money to those who don't need it being amplified a hundred times in a thousand different places. With credit markets in such a state of fright and panic, the fear is that somebody will toss a match onto the pile by calling in some heavy, arcane debt, taking down a particular firm or financier and toppling the whole house of cards. With governments around the world throwing taxpayer money at the problem left and right, the potential for fraud and abuse also becomes prevalent.
It's a crisis all right, one caused by banks, to banks. As I have opined in the past, they are now ravaging themselves. The upshot of all this high-financial drama is that the high and mighty of Wall Street will be taken down a number of notches. Smaller, better capitalized firms with saner managements will eventually pick up the pieces and the slack and all will be back to some semblance of normalcy in the not-so-distant future.
Some small business owners have had lines of credit reduced or pulled completely, but generally, the wheels of industry are still turning, albeit a bit slower. Nowhere are we seeing banks calling in loans en masse and bankrupting companies. That may occur down the road a bit, but, again, the victims will be few and far between.
Some stocks are at ridiculous levels and have been unmercifully taken down as part of the scramble to exit the equity markets. For instance, Citigroup closed at 14.40 today, a level unseen since 1998, adjusting for splits. GE slid to 20.65, Intel is at 16.25, Bank of America closed today at 22.10.
On the day, a bit more distress from the internals. Declining issues outnumbered advancers, 4839-1687, a bit of an improvement over the past two days. New lows rocketed to 3221, against just 18 new highs.
NYSE Volume 2,106,070,000
NASDAQ Volume 3,576,052,000
If today wasn't the panic selling so often associated with market bottoms, then you might as well kiss your savings and retirement goodbye. As is often the case, the washout from the past two weeks has produced a massively oversold condition. Some stocks have fundamental value far beyond where they are being priced today. It's full-blown hysteria, and cool hands will surely reap the benefits of waiting, watching and finally pouncing. We should witness a number of rapid huge market gains, though they will be short-lived until some semblance of reality and value is brought to bear.
Commodities seem to be taking it all in stride, acting in a more orderly fashion. The December light, sweet crude oil contract closed today down just 28 cents, at $88.43. Gold gained $24.50, to $906.50. Silver edged higher by 39 cents, to $11.77 the ounce.
If the reaction on Wall Street is any indication, the markets should begin to settle down and begin focusing on 3rd quarter earnings - which may not help to averages much - though any positives will be greeted with enthusiasm by those who haven't already thrown in the towel or been thrown to the wolves.
Tuesday, October 7, 2008
Fear in Their Hearts, Blood in the Street
Those investors who did some bargain hunting in the closing hour of trade Monday may not look so wise after today's horrific results. On the other hand, they just may have been a few days, weeks or months early.
The stock market was pretty easy to figure on Tuesday. All one had to do was draw a diagonal line at a 20 degree angle from the open and the closing price was right there. Panic would probably be an understatement of the recent emotional trading trends, and that's a strong signal that the bottom may be in sight. It is at these moments and days that the fearful and weak take flight... and losses.
Over the past four session alone, the Dow has flopped nearly 1400 points, a decline of 12% in less than a week and a 34% decline from the absolute top of October 2007. Ditto for the NASDAQ and S&P, and worse. Remember, the NASDAQ was once above 5000. Today it is below 1800. That's a 67% loss overall, but a 39% decline from the high of 2861.51 in October of last year.
The NASDAQ closed today at its lowest point since August 16, 2004.
The S&P is 37% below its high of last fall and today dropped below the 1000 mark for the first time since September 30, 2003, making today's close a 5-year low.
So, the obvious question becomes, "Where is the bottom?"
Dow 9,447.11 -508.39; NASDAQ 1,754.88 -108.08; S&P 500 996.23 -60.66; NYSE Composite 6,388.38 -366.53
Nobody can tell for sure, but, despite the daily ugliness on the exchanges, there may be signs of stabilization in the banking sector, which is, after all, the root of all problems. It will only be known at a later date, but the problems plaguing banks and financial institutions may not spread very far into the general business section of the economy.
Many businesses have already been hurt and an equal amount have seen their share prices pounded down without cause. For the most part, however, financing is only one part of running a business. There are many established companies which will suffer only minor losses and continue to be profitable now, tomorrow and well into the future.
It is in times such as these that bears become bulls. First, by small, faltering steps, then with a better footing, more confidence, until finally breaking into full stride. The entire length of time may be measured in months and maybe years, but there are surely signs of capitulation while many companies and investors aren't blinking.
Confirming that the bottom is in sight are the market internals which were not as one-sided as yesterday's, though close. Declining issues led advancers by a wide margin once more, 5475-1012, a 5-1 ratio as compared to Monday's nearly 8-1 spread. 1854 stocks registered new lows, to just 12 new highs. Compare those numbers to 2804 and 10, yesterday, a marked improvement.
Volume was also not as dramatic as Monday, though close.
NYSE Volume 1,724,910,000
NASDAQ Volume 2,872,177,000
Commodities found some solace in the decline of equities, though these gains are probably fleeting. One should not look to either gold, silver or oil for lock-in profits. There will be slack demand for some time to come and that will put a lid on all commodities and prices overall. Expect the PPI and CPI to show real losses over the coming 6-9 months. On the day, oil gained $2.25, to $90.06; gold added $15.80, to $882.00, while silver was up 10 cents, finishing at $11.38.
If you're scared to look at your portfolio, you haven't been paying much attention. This slow motion market crash began in August of 2007. Anybody with more than half a brain has been either out of the market or taking defensive positions six to ten months ago. If you're in a fund, 401k or other untouchable investment vehicle, the advice I offered many months ago, in late 2007, to take the 10-20% penalty and move it all to cash went unheeded by you.
I hate to say it, but I told you so, and I told you consistently and persistently for the last 12 months, to run away from stocks. Some of you listened. Others did not and are now paying the price.
Tomorrow may be the ultimate blow-off, or the market could stabilize. Those of us with no positions can only sit back and watch the carnage. To the rest of you, who feel that you must be heavily invested at all times, live and learn. And to those who say you can't time the market, you need to look in the mirror at the idiot facing you. This entire collapse was telegraphed better than a roundhouse right from a punch-drunk fighter.
Only the brain dead and intellectually-impaired didn't see this coming.
I will be buying stocks again soon, but nobody should be in any kind of rush. Stocks will remain somewhat depressed for some time to come. Since we've likely been in a recession that began in the 4th quarter of 2007, we should be nearing the tail end of it.
Six months from now, we should all be laughing about the stupid things some people did when they lost all hope. For every loss there's a gain, though there is probably some time spent wondering in between.
A little advice: Shut up, grow up, and man up. Nobody likes a whiner.
The stock market was pretty easy to figure on Tuesday. All one had to do was draw a diagonal line at a 20 degree angle from the open and the closing price was right there. Panic would probably be an understatement of the recent emotional trading trends, and that's a strong signal that the bottom may be in sight. It is at these moments and days that the fearful and weak take flight... and losses.
Over the past four session alone, the Dow has flopped nearly 1400 points, a decline of 12% in less than a week and a 34% decline from the absolute top of October 2007. Ditto for the NASDAQ and S&P, and worse. Remember, the NASDAQ was once above 5000. Today it is below 1800. That's a 67% loss overall, but a 39% decline from the high of 2861.51 in October of last year.
The NASDAQ closed today at its lowest point since August 16, 2004.
The S&P is 37% below its high of last fall and today dropped below the 1000 mark for the first time since September 30, 2003, making today's close a 5-year low.
So, the obvious question becomes, "Where is the bottom?"
Dow 9,447.11 -508.39; NASDAQ 1,754.88 -108.08; S&P 500 996.23 -60.66; NYSE Composite 6,388.38 -366.53
Nobody can tell for sure, but, despite the daily ugliness on the exchanges, there may be signs of stabilization in the banking sector, which is, after all, the root of all problems. It will only be known at a later date, but the problems plaguing banks and financial institutions may not spread very far into the general business section of the economy.
Many businesses have already been hurt and an equal amount have seen their share prices pounded down without cause. For the most part, however, financing is only one part of running a business. There are many established companies which will suffer only minor losses and continue to be profitable now, tomorrow and well into the future.
It is in times such as these that bears become bulls. First, by small, faltering steps, then with a better footing, more confidence, until finally breaking into full stride. The entire length of time may be measured in months and maybe years, but there are surely signs of capitulation while many companies and investors aren't blinking.
Confirming that the bottom is in sight are the market internals which were not as one-sided as yesterday's, though close. Declining issues led advancers by a wide margin once more, 5475-1012, a 5-1 ratio as compared to Monday's nearly 8-1 spread. 1854 stocks registered new lows, to just 12 new highs. Compare those numbers to 2804 and 10, yesterday, a marked improvement.
Volume was also not as dramatic as Monday, though close.
NYSE Volume 1,724,910,000
NASDAQ Volume 2,872,177,000
Commodities found some solace in the decline of equities, though these gains are probably fleeting. One should not look to either gold, silver or oil for lock-in profits. There will be slack demand for some time to come and that will put a lid on all commodities and prices overall. Expect the PPI and CPI to show real losses over the coming 6-9 months. On the day, oil gained $2.25, to $90.06; gold added $15.80, to $882.00, while silver was up 10 cents, finishing at $11.38.
If you're scared to look at your portfolio, you haven't been paying much attention. This slow motion market crash began in August of 2007. Anybody with more than half a brain has been either out of the market or taking defensive positions six to ten months ago. If you're in a fund, 401k or other untouchable investment vehicle, the advice I offered many months ago, in late 2007, to take the 10-20% penalty and move it all to cash went unheeded by you.
I hate to say it, but I told you so, and I told you consistently and persistently for the last 12 months, to run away from stocks. Some of you listened. Others did not and are now paying the price.
Tomorrow may be the ultimate blow-off, or the market could stabilize. Those of us with no positions can only sit back and watch the carnage. To the rest of you, who feel that you must be heavily invested at all times, live and learn. And to those who say you can't time the market, you need to look in the mirror at the idiot facing you. This entire collapse was telegraphed better than a roundhouse right from a punch-drunk fighter.
Only the brain dead and intellectually-impaired didn't see this coming.
I will be buying stocks again soon, but nobody should be in any kind of rush. Stocks will remain somewhat depressed for some time to come. Since we've likely been in a recession that began in the 4th quarter of 2007, we should be nearing the tail end of it.
Six months from now, we should all be laughing about the stupid things some people did when they lost all hope. For every loss there's a gain, though there is probably some time spent wondering in between.
A little advice: Shut up, grow up, and man up. Nobody likes a whiner.
Monday, October 6, 2008
Late Rally Saves Stocks
The continuing credit crisis took its toll on frazzled investors again on Monday, with the Dow down as much as 800 points shortly before 3:00 pm. From that point forward, however, stocks rallied across all indices shaving the losses by more than half in the final hour.
Dow 9,955.50 -369.88; NASDAQ 1,862.96 -84.43; S&P 500 1,056.89 -42.34; NYSE Composite 6,754.91 -334.03
What moved stocks late in the session was a rumor of an emergency G8 meeting, ostensibly to explore global options for dealing with the ongoing banking crisis. More likely is the assumption that there are now real bargains being scooped up by daring speculators. One can hardly blame them, though catching the falling knife is seldom a smart move.
There should be little doubt right now that it was banks and bank practices which caused the overly long bull market from November 2002 through August 2007 and it is those same banks and bank practices - now in reverse - that have been and are causing the decline in stocks and the run to fixed instruments.
Most of the carnage has been caused by the large money center banks which have become increasingly wary of each other, owing to the massive structure of derivatives, including the now-unpopular credit default swaps which have just recently become the focus of the financial media.
Of course, the arcane instruments which banks have employed for years to spread and/or minimize risk are now at risk themselves. The result is the possibility of a fast-falling house of cards in the enormous (estimates vary), roughly $56 trillion derivatives market.
If you think you're worried, imagine the naked fear in the board rooms and CEO suites of major financial firms. It's a knife-to-the-throat environment in which everybody and everything is almost equally at risk.
One might conclude that the world is going to end, or that some major economic catastrophe was about to occur, but the truth is that the event is ongoing, unwinding and probably will continue for some months, until banks and governments conclude that the worst is already behind us.
Chart watchers and Fibonacci adherents should note that a bottom may be near. Implications of this are spelled out more fully in this month's Fearless Stocks and Options Advisory.
In any case, the markets are now entering a new and precarious phase. The two forces at work over the next 4 weeks will be corporate earnings reports for the third quarter and the US presidential election. The former will affect individual stocks, whereas the latter should have more impact upon markets and indices in a more generalized way.
On the day, market internals were about as negative as we've seen, even including recent volatile sessions. Decliners swamped advancing issues by a massive margin, 5613-722, a ratio of nearly 8-1. New lows registered at a phenomenal 2804 stocks, with only 10 new highs. More than 2 of every 5 stocks reached new 52-week lows on Monday. All of these signals point to imminent capitulation by market participants.
Volume was particularly heavy, but the closing rally (over 400 points on the Dow) should be somewhat of a salve for the buy-and-hold mindset.
NYSE Volume 1,974,275,000
NASDAQ Volume 3,493,974,000
Commodities were mixed once more, with oil taking a severe hit at an important level, crashing through the $90/barrel mark. Light, sweet crude for November delivery fell $6.07, settling at $87.81. Gold was up $33.00, at $866.20, but silver lost 4 cents, closing at $11.29.
As has become somewhat of a mantra for me, there are signs of deflation everywhere. By the time this is all over, cash and credit-free positions will be highly valued and everything from cars to candy bars should cost less. The effects of tighter credit and slower demand take some time to work through economies, and this environment is no different.
Dow 9,955.50 -369.88; NASDAQ 1,862.96 -84.43; S&P 500 1,056.89 -42.34; NYSE Composite 6,754.91 -334.03
What moved stocks late in the session was a rumor of an emergency G8 meeting, ostensibly to explore global options for dealing with the ongoing banking crisis. More likely is the assumption that there are now real bargains being scooped up by daring speculators. One can hardly blame them, though catching the falling knife is seldom a smart move.
There should be little doubt right now that it was banks and bank practices which caused the overly long bull market from November 2002 through August 2007 and it is those same banks and bank practices - now in reverse - that have been and are causing the decline in stocks and the run to fixed instruments.
Most of the carnage has been caused by the large money center banks which have become increasingly wary of each other, owing to the massive structure of derivatives, including the now-unpopular credit default swaps which have just recently become the focus of the financial media.
Of course, the arcane instruments which banks have employed for years to spread and/or minimize risk are now at risk themselves. The result is the possibility of a fast-falling house of cards in the enormous (estimates vary), roughly $56 trillion derivatives market.
If you think you're worried, imagine the naked fear in the board rooms and CEO suites of major financial firms. It's a knife-to-the-throat environment in which everybody and everything is almost equally at risk.
One might conclude that the world is going to end, or that some major economic catastrophe was about to occur, but the truth is that the event is ongoing, unwinding and probably will continue for some months, until banks and governments conclude that the worst is already behind us.
Chart watchers and Fibonacci adherents should note that a bottom may be near. Implications of this are spelled out more fully in this month's Fearless Stocks and Options Advisory.
In any case, the markets are now entering a new and precarious phase. The two forces at work over the next 4 weeks will be corporate earnings reports for the third quarter and the US presidential election. The former will affect individual stocks, whereas the latter should have more impact upon markets and indices in a more generalized way.
On the day, market internals were about as negative as we've seen, even including recent volatile sessions. Decliners swamped advancing issues by a massive margin, 5613-722, a ratio of nearly 8-1. New lows registered at a phenomenal 2804 stocks, with only 10 new highs. More than 2 of every 5 stocks reached new 52-week lows on Monday. All of these signals point to imminent capitulation by market participants.
Volume was particularly heavy, but the closing rally (over 400 points on the Dow) should be somewhat of a salve for the buy-and-hold mindset.
NYSE Volume 1,974,275,000
NASDAQ Volume 3,493,974,000
Commodities were mixed once more, with oil taking a severe hit at an important level, crashing through the $90/barrel mark. Light, sweet crude for November delivery fell $6.07, settling at $87.81. Gold was up $33.00, at $866.20, but silver lost 4 cents, closing at $11.29.
As has become somewhat of a mantra for me, there are signs of deflation everywhere. By the time this is all over, cash and credit-free positions will be highly valued and everything from cars to candy bars should cost less. The effects of tighter credit and slower demand take some time to work through economies, and this environment is no different.
Subscribe to:
Posts (Atom)
Posts
