Crash of 2008: Update
I normally publish a performance review of global stock markets at the end of each month, but the meltdown around the world of the past few days necessitates an update.
“If a man does not know what port he is steering for, no wind is favorable to him,” said philosopher Seneca in 4 BC 65 AD. Why am I constantly reminded of this quote when looking at some of the rather haphazard actions taken by governments to alleviate the financial turmoil?
And this quote du jour from Richard Russell’s Dow Theory Letters of yesterday (spelt precisely the way it appeared in his newsletter): “Flash! Lowr;s reports trhat todayh was another 90% down-day, rhw rhird this week! Unbewlievable.” The R man usually has a calm demeanor, but was obviously astounded, like most of us, by the voracity of the bear.
What are the pro traders saying about your stocks?
Minyanville's Buzz & Banter- 14 day FREE Trial
With global equities falling off a cliff, the MSCI World Index has been down every day for the past six days, plunging by a staggering 17.7% since the beginning of the month. The corresponding figure for the MSCI Emerging Markets Index is 20.1% in the red.
Yesterday viewed the third largest points decline (-679) and 14th largest percentage decline (-7.3%) for the Dow Jones Industrial Average since its inception in 1896. Five of the largest ten-point declines in history have so far occurred in September and October this year. Please see the table Dow Jones Industrial Average: Largest Points Declines.
I have added a month-to-date column to the performance table in order to reflect the past few days’ action. As I am still on a business visit in Europe, I will let the numbers speak for themselves without further comment.
I am leaving you with these words from friend Paul Kedrosky (Infectious Greed):
“If this kind of fear we're seeing in the equity markets doesn't speedily turn into some sort of bottom on the market I genuinely don't know what will. Truly. Of course, in a sense it doesn't matter. The damage has been done. The global banking system is a mess, like a patient that has been poked by too many interns and fed (no pun intended) too many experimental medicines. It's impossible to know any more whether it's the illness or the medicines that are hurting things here. And even if we have jury-rigged a semi-functional banking system again, the rapid contraction of the real economy is set to feed back into the financial system, causing more credit problems. The effects will be vicious.
“I am trying very hard to look through all of this to see what things look like on the other side. And I can see faint outlines, for sure, but that other shore still seems awfully far away.”
My sentiments exactly. Please see the following tables: Global Stock Markets: Index Movements (in Local Currency Terms) and Global Stock Markets: Index Movements(in US Dollar Terms).
Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
However, a market akin to 1970-1978, hovering in the 9,000 range isn't that far off.
I'm certain we touched "a bottom" today at 7,888. I've felt the "real bottom" is about 7,600.
I may be wrong, but doubt I am. The average person who a year ago was clamoring to jump aboard the rocket to 21,000 is now screaming to get off the rocket. That's usually a pretty good sign of a market bottom, just as their decision to jump aboard a year ago was a sign of a top.
I agree that the market, left unfettered, would have probably filtered all this out already, but the bailouts and the removal of short selling have really hampered proper market behavior....which is one reason why I may be wrong about 7,600. But I don't think I am.
So many companies are still in good shape, I'd have to say the current market levels (for certain companies) make this a strong buy. Long term outlook may be hazy, but I still suspect things will be OK. Not every market crash has led to a massive recession. Then again, almost every massive government intervention has.....
I'm an optimist. The glass remains as half-full as it was a week ago. The fact that fear mongers have spread their seed, and so many ignorants have fallen for it is their problem, not mine.
Wendell Berry wrote a collection of essays, "What Are People FOR?"
We know the evolutionary answer is "to make babies", but what is our societal answer?
If we objectively look at how everyone is behaving, one would think that our goal is "To make money to make more money."
That isn't a goal, it's a psychosis.
There should never have been something called a "housing industry", because houses should be permanent dwellings for generational habitation. The financial 'instruments' based on growing industries we don't need to live well are simply entertainment for the psychosis of Perpetual Growth.
If we are to get out of this properly and for the long term, we need to realize that this "crisis" is only a crisis in the psychosis, not a crisis of survival. Living well is a matter of forming useful communities and minimal consumption.
Maximized consumption and useless groupings (bedroom communities/suburbia) are just the opposite of what made the money valuable in the first place: trust and moderation.
Until we discover the actual resources available (Hear that, Mr Cheney?) through open records, and the actual needs related to how many people we need to maintain diversity and care for the sources of food, water, shelter and civil activities, then it is impossible to set a mark of where our profit-based investments should be.
I think we have 1 more swing down. To a low of around S&P 800. Thats the last bear market's bottom, and a good place to look for a bounce. In my opinion...
However, We will always see a retest of the low (wherever it is) so don't be a hero, and scale in (I'll be shorting the bounce and buying the retest).
...my two cents
Won't these two issues have tremendous negative impacts on balance sheets of companies? As Prof. Peter says, income statements are the past, balance sheets are the future....
Carefully.
You don't just throw it around, even when times are good.
Sadly the amount I have doesn't make a difference in the grand scheme, I can only believe that others are as level headed as I and are preparing to reenter. There does seem to be quite a bit of money available, but I believe most of them are waiting until there is quite a bit of "blood in the streets".
One more swing down is certainly possible, but I'm betting Dow 7,600, and we're right around there.
