Will The Market Slide Ever End?

NEWS: The major indices closed down over 5% as new multi-year lows were hit. The song remains the same for the market - the global credit crisis remains more than a burden. The financials led the selling with a loss of 11% for the sector. The Dow (^DJI) finished with a loss of 500 points, the S&P 500 (^GSPC) fell 60, and the NASDAQ (^IXIC) tumbled 108 points. The commodities were able to break the downtrend as gold and oil both moved higher today. Gold is up nearly $50 in the last two trading sessions.

THE BOTTOMLINE: I will be honest with you, it feels as if the market wants to continue falling every day and that nothing will ever spur on buying again. And this is exactly why the fear index is at levels only experienced a few times in the last 20 years. But as I said yesterday, in the short-term and intermediate-term following such fear-driven situations, the market was remarkably higher. That being said, I will not condone buying purely on the fear indicator even though it has been one of the most reliable ways to spot a market bottom. Because I am not in the business of picking market bottoms, I will wait for the market to firm up before putting fresh money into new investments. Even though I truly do feel the stock market will be significantly higher in 12 months, trying to pick a bottom is too dangerous.

THE END OF THE OIL MARKETS

NEWS: The price of oil hit the lowest level since February yesterday before rallying back today to close at $90.06. Meanwhile, in less than 5 months the SPDRs Energy ETF (XLE), which is composed of a basket of energy stocks is down 42%.

THE BOTTOMLINE: The oil stocks have been beaten nearly as bad as the financials and for what reason? A global economic slowdown? Sure things will slow a bit, but it does not suggest the need for energy created from petroleum prices will abruptly end. But when the market is irrational (as it is at market bottoms and tops), investment is no longer logical and purely based on fear and greed. Fear has driven the P/E ratio on Exxon Mobil (XOM) down to 9 and other major energy companies have P/E ratios between 5 and 6!

I am not advocating running out and buying energy stocks tomorrow, however you will look back at the current prices of the energy stocks and ask yourself why you were so afraid to buy. As a matter of fact, that will be the case for a large number of sectors in the coming years. I believe we are in the midst of one of the GREATEST buying opportunities in the last few decades. BUT, no one will pick the bottom and therefore long-term investors (such as Buffett) put money to work when they see value and opportunity. Over the long-term Buffett will once again look like a genius and the investors that are digging holes in their back yard and buying bigger beds will continue to be unsuccessful in the stock market.

WHAT I AM DOING TO STAY SANE: For starters you cannot let the daily swings of the market affect your long-term decision making. Second, we have been selling a couple positions in the last week as we see fit. The sell decisions were based on lower expectations for the sold positions and it allowed us to raise more cash for the next bull market buying opportunities. Finally, put things into perspective and realize that when everyone (and I mean everyone) is on one side of the trade, the end of that trade is near.

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Comment by mary miller

2008-11-06 17:08:39

Tell me how these bastards, both the CEO’s, greedy lenders and government cheats, get away with what has happened. Now Obama wants to take away from the “rich” and give to the “poor”. What about the hard working people who have worked and saved for their futures (retirements, kids school,etc), didn’t spend foolishly, was conservative with their money. Now it has been stolen, paid with our tax money to these big banks and companies so that they can now squander the money again on CEO pay, bonuses, parties and give to the poor to finances their lives on credit cards and bail out mortgages for the people who never did save for what they could afford.
It makes me sick. It will change the way we, the conservative people, live. Instead of trying to live within my means and save I will now be one of those credit card spenders and buy me a big house and car on credit. To hell with trying to do right.
Those people get rewarded.

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Comment by Eileen

2008-12-02 21:54:07

I totally agree with Mary Miller, indeed I could have written her email blog. I am sick and tired of paying for other people’s lifestyle, while those of us who have saved, and counted our pennies over the years and been frugal with our money; who invested our hard earned money for the long term so we could have a good retirement, put money aside for our grandkids college, didn’t buy McMansions, or indulged in plasma TV’s, other tekkie trash and expensive foreign cars - have been royally screwed by the system. I love my country - America, but I’m seriously considering moving to a really cheap inexpensive banana republic to get away from all these American socialist programs that seem to benefit only politicians who want to get re-elected and rich people. The middle class of America have been taken to the cleaners, washed, drycleaned and recycled. FREEDOM!!!

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