Friday, October 10, 2008

Some Dollars, No Sense... Looking at Charts...

A Trip to the Bus Garage...
Worker "Brian, did you hear the stock market dropped another 700 points today?"

Brian "I heard something about that."

Worker "You know what they are saying?"

Brian "What's that?"

Worker "Now is the time to buy... Within two years you will at least double your

Brian "Huh... who is saying that?"

I am curious to know who "they" are? Sure it could be some of the workers in the bus garage, but more than likely the "they" in this case are market oracles who know that the market is coming off its worst week in history, and therefore it has to go up...

Maybe Newton's Law of Gravity works in physics, but I do not believe those laws apply to stocks or markets for that matter. The truth is credit markets are in worse shape now then they were a week ago... and the bailout plan is already a law. Maybe it's the fact that AIG needed more money this week. (Hopefully some of it went to tip the servants at the extravagant hotel executives stayed at...). Another theory behind seized up credit markets is that banks just don't trust each other (The Libor Rate is now higher than any other time in history.) Maybe credit markets are still reeling with the systemic collapse of Iceland due to the country's financial insolvency. I believe it is the fact that President Bush was on TV again saying that he has a plan. At this juncture, readers should be reminded that in July, the President was quoted with "We narrowly missed a recession." Evidently, Bush believes the real problem that is driving the market is anxiety. The good news is that the President will be meeting with G-7 leaders this Saturday. No doubt, that all this will be worked out by Monday morning... But I doubt it!

According to major Economic downturns, three charts suggest that markets usually take a while to bottom...

According to this chart the greatest of all crashes.. the 1929 "Crash" the stock market headed down nearly 35% on Black Tuesday. What many people fail to mention is the market did not completely bottom until three years later. There were several mini-rallies followed by heavy moves to the downside. When the bottom finally hit, the market only retained 12% of its original value... Kind of scary if you think about it!!! I wonder how many of those saps heard teh words "Now's the time to Buy?"

The second chart is from 1987. I believe this crash was predicated on a meltdown of Savings & Loans in the United States, and the subsequent bailout. While this crash... or panic if you will only lasted one day, it appeared to be confined to one segment of the U.S. financial markets. Some investors piled into the market the next day, and received an instant reward. I found this chart on a site entitled "The Best Way to Invest." Rarely though are we afforded an opportunity to pick a bottom in a market. A second follow-up day of losses and it is Good Night Irene.

The third chart underscores events related to the terrorist attacks on 911. I distinctly remember CNBC raising the questions as to "Who are the real Patriots who were going to ride out the storm?" It is my belief that the real patriots in that case were those who were piling money into their 401K and 403B plans. I do not doubt for one second that many of the "investor" "trader" class types jumped out of that market with both feet! Only to jump right back in when the opportunity presented itself.

However, the last chart I must share with you is fundamentally different from all the others. It clearly demonstrates two trends.
1. It shows a perpetual slide where the DOW lost 25% from its high.
2. It underscores the fact that the economic slowdown could in-fact go on for months if not years!
The stock market's condition now is based on factors such as consumer consumption, a credit crisis, and debt. This recipe suggests that the slide will not be a week to week condition, but a slow slide into the abyss, in-spite of what the experts think.

Let the Oracles of Wall Street buy this market. In my humble opinion, now more than any other time it is of the utmost importance to preserve capital! There is no clear indication that this market has bottomed...or is even close to bottoming. Remember, the market took three years to bottom after the "Crash" of 1929!

Sources Referenced

1 comment:

AX said...

TC, you know what I think of charts, but your point about CNBC is well taken. The media is acting like this is a blip in the neverending market that must go up. A pinch here, a dash there, and presto, back up to 14K! Stocks have been grossly overvalued for a long time and earnings projections remain too high as well.