Thats going to leave a mark! The market is starting to look like a waterfall. You need to go back to 1937 to see a yeear this bad:
"Oct. 7 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor's 500 Index below 1,000 for the first time since 2003, on speculation banks and real-estate companies are running short of money as the credit crisis worsens.
Bank of America Corp. tumbled 26 percent after cutting its dividend in half and saying it plans to sell $10 billion in common stock to brace for a recession. Morgan Stanley, KeyCorp and JPMorgan Chase & Co. slid more than 10 percent as investors shrugged off signs the Federal Reserve will reduce interest rates. General Growth Properties Inc., a mall owner, plunged 42 percent on concern it won't be able to repay debt.
The S&P 500 slid 60.66 points, or 5.7 percent, to 996.23, extending its 2008 tumble to 32 percent in the market's worst yearly slump since 1937. The Dow Jones Industrial Average dropped 508.39, or 5.1 percent, to 9,447.11, giving it a 29 percent retreat in 2008 that would also be the worst in 71 years. The Nasdaq Composite Index lost 5.8 percent to 1,754.88.
``We've approached the edge of the cliff,'' Leon Cooperman, 65, who manages $6 billion at hedge fund Omega Advisors Inc., said at the Value Investing Congress in New York. ``Do we go over the cliff or begin to recede? History says we recede, but there's no guarantee. This is the most difficult financial environment I've lived through.''
Folks, there really isn't much to analyze here. We are watching a combination of fear and lack of trust take over in the market, sending it into a free fall. The fact that the market ignored Bernanke's radical sticksaves was surprising to me. This is something important something that I will take notice of. Maybe the public is starting to tire of Bennie's bailouts?
I take notice of this because the market has responded very favorably to every large intervention other than the housing "bailout". The market completely ignored both the article that I posted above, and a hint that they were ready to cut rates.
You need to take this into account moving forward with your investing strategy. It tells me that fear now outweighs intervention in the market. The sticksaves may no longer be as effective as a result. In fact, they may start to have a negative effect as the public starts to lose confidence in the government as the market continues tio drop. Perhaps the next sticksave might even cause a panic? This is what happens when you intervene and things get WORSE! The Fed may be instilling fear into the marketplace versus confidence.
"The Fed will save us" strategy is a fantasy. I have spoken about this for months!. The Fed loves to talk about their "infinite" balance sheet. They promise us everyday that they will do whatever is necessary to keep the economy going.
This simply is a pipe dream folks. The Fed can only spend so much money before the bond market has a fit and raises yields on treasuries as we watch inflation soar. The Fed doesn't have "infinite" money. If it did then the Fed would have used it by now and gotten us out of this mess.
We all know they can't do this because you need to print money in order to do so. Printing money causes hyperinflation which is an end game. Ben knows he can't do this or its over.
They also risk losing their foreign buyers of treasuries if they spend too much. China may decide to stop buying treasuries if the Fed starts spending like a drunken sailor. They may ask: Why should we buy the debt of a country that's spending themselves into oblivion?
Don't believe the hype that the Fed can save the day with their balance sheet. Lets all hope they use it in a way that allows us to navigate through this financial catastrophe without heading into a depression.
I am speechless about the selling today. It reminded me a lot of the relentless selling during the tech wreck. Some great companies are being beaten senseless for no reason other than people are scared and don't trust the market. This will create great buying opportunities down the road, but now is not the time to think about this.
Stay mainly in cash folks. Get out of the way! I know its boring, but look at the bright side of this strategy. If you have stayed mainly in cash this year, you have saved 1/3 of your nest egg. If you followed the "Bubblevision" strategy and began this year with $450k invested fully in the market, you would now be receiving your September 401k statement revealing that your nest egg is now only 300k. Ouch!
On the other hand, if you went to fixed income with the same 450k at the beginning of the year and earned 3 percent, you would have about 470k. Not bad eh? One thing is for sure! You would be kicking Jim Cramer's charitable trusts ass this year if you followed this strategy.
If you threw on a few shorts at the beginning of the year you would be up even more!
Short term, its very difficult to predict where we go from here. When fear has taken over the market, you need to let it run its course until the selling has capitulated. Was today the day? Maybe.
I reduced my short positions this morning after a week of severe selling. Unfortunately I missed most of todays selloff! This doesn't mean that I think the selling is over as of today. I just locked in some profits. We appear to be severely oversold but I said that yesterday so who knows! The one thing I do know is the market never heads straight down. Only Lehman's checkbook does that!
I plan on adding shorts on any significant bounce. I think we will see a second wave of selling down the road as we settle into a severe second half recession that will destroy earnings, and it could potentially last throughout all of 2009.
Be careful out there. This bear has some big claws!