Moment of Truth
Well here we are at 1160 after a sharp opening rally to 1184. They say the market rallied on news that the Fed was injecting massive amounts of liquidity into the system. They say that it was a coordinated efforts with other central banks. Why then are we back at the lows? I think we will break down (targets 1100 and the other i won't mention now) but bear markets are tricky. While they do go down like stones, they also face enormous efforts on the part of enormous market players to stem the tide. So bear markets have an inherent "braking" system in place.
But this is probably not an ordinary bear market. So all the pundits that say "well the average bear market drops 26% so we are there and..." don't realize what's really going on. I hate to sound like a broken record and maybe I am believing too much of my own you-know-what BUT, Bear Stearns, Fannie Mae, Freddie Mac, Lehman, Merrill, now AIG, who is next? all went bust in the last 6 months. Please reread that and think on that. Some questions come to mind...who will step in and replace these "providers of capital to our economy"? what will be the effect of tens of thousands (maybe hundred thousand plus) of unemployed secretaries, clerks, and m&a mba experts? Other than the US Governement (& taxpayers) why weren't there any other bidders for these storied companies? And just what is the Government going to do with all that bad paper and those bloated companies? It occurs to me that none of the answers bode well in the near term. I just do not see this turning out ok for a while.
Give the Government credit. They are taking steps to calm things, to buy time, so that order is restored. But I am concerned that
a: they are running out of "bullets"
and
b: they are now inexperienced custodians of very complicated companies.
Yes, in the long term this might work out but 3-5 years is a long way off. When the Fed is out of bullets I am sure the Government can take other steps but they can't be desirable alternatives. And if the economy weakens further from the decline in bank lending and lack of credit creation then that could put even more pressure on the economy.
What's an investor to do? I just don't see any reason to be long here other than a very small position or to trade a counter trend rally. I think we could go sharply lower with very little 'meaningful' risk to the upside. As I write this, yesterdays low's have been taken out. We are now 1150 and falling...what's the Fed's next move? Wow!
But this is probably not an ordinary bear market. So all the pundits that say "well the average bear market drops 26% so we are there and..." don't realize what's really going on. I hate to sound like a broken record and maybe I am believing too much of my own you-know-what BUT, Bear Stearns, Fannie Mae, Freddie Mac, Lehman, Merrill, now AIG, who is next? all went bust in the last 6 months. Please reread that and think on that. Some questions come to mind...who will step in and replace these "providers of capital to our economy"? what will be the effect of tens of thousands (maybe hundred thousand plus) of unemployed secretaries, clerks, and m&a mba experts? Other than the US Governement (& taxpayers) why weren't there any other bidders for these storied companies? And just what is the Government going to do with all that bad paper and those bloated companies? It occurs to me that none of the answers bode well in the near term. I just do not see this turning out ok for a while.
Give the Government credit. They are taking steps to calm things, to buy time, so that order is restored. But I am concerned that
a: they are running out of "bullets"
and
b: they are now inexperienced custodians of very complicated companies.
Yes, in the long term this might work out but 3-5 years is a long way off. When the Fed is out of bullets I am sure the Government can take other steps but they can't be desirable alternatives. And if the economy weakens further from the decline in bank lending and lack of credit creation then that could put even more pressure on the economy.
What's an investor to do? I just don't see any reason to be long here other than a very small position or to trade a counter trend rally. I think we could go sharply lower with very little 'meaningful' risk to the upside. As I write this, yesterdays low's have been taken out. We are now 1150 and falling...what's the Fed's next move? Wow!
posted by David Geller at 11:15 AM
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