In kind of a doleful epiphany last night, I finally got it; why the markets, heretofore meant to be efficient, cannot function under the present circumstances.
The only person in the investment triangle worth saving - the investor - is now the only one who is being penalized for "staying the course". He is without protection in the current malaise. Sellers are protected - they are out, or piggybacking on shorts preying on those who remain in. If you could look out at the week ahead and feel fairly certain that you will lose 3% on Monday, 1% on Tuesday, 4% on Wednesday, 5% on Thursday and 3% on Friday, why would you stay in? That's a year's gains lost in a week.
Being "in" the market as a shareholder today is akin to being in a large swimming pool with hundreds of naked people and 4 or 5 very hungry Great White sharks. You can see people being eaten alive, you can hear their screams and see the blood in the water, and yet all's you have to do is hop out of the water and get out at the side of the pool. Then you're safe. Why wouldn't you do this?
The sentiment indicators I follow are at zero - zero buying, zero stocks in the SPX 500 above their 50 day moving average - and as anyone knows, you can multiply zero by any number and only get more of the same. No...now there are only sellers, and in a self-fulfilling prophecy the more they sell and get out of the pool the fewer people are left in the water to be eaten, which only intensifies the sharks of selling, which puts the odds - and more pressure - on those in the pool to abandon all hope and get out.
Shareholders are important for publicly traded companies. $50 trillion in capital and retirement funds business expansion in our economy.
Like I said before, those who abandon the paradigm, who sell and get out, maybe never to return - by their very act protect themselves and what capital they have left. How do we protect those who stay the course, who put up their hard-earned capital to remain in the game? Nothing is being done for them. There is a worldwide holocaust of investment capital occurring and the killing must be stopped or we will have a systemic meltdown within a short time.
The financial system is now destroying its own supporters and rewarding its destroyers. If you can see it for what it is - and know that by Friday there is a good chance that your stocks will be 20% less - why would you hold at today’s prices? And further, since many companies are net of debt and selling for their cash levels, does anyone really think that their business is worth nothing? I don't think so. I think it's worth a lot more than that, but the current malaise in the financial system is structured so that true value no longer matters. The system is broken. Things are not what they are feared to be, but the fear is so strong and so unbreakable that an investor either lives with the constant fear or escapes.
I think the markets should be closed for a one-week "cooling off" period and in the interim, the hedge funds that need to liquidate should state the truth of their circumstances to the Feds, sell the stocks they need to sell to the government at Friday's closing price on the agreement that they will return all excess capital to their shareholders, and then close their doors; and then have the markets reopen.
But here's the rub, what if those un-sellable assets are mortgage-backed securities or other such stuff - and in such a quantity that no one can absorb it? Then it's lights out. What if there is now so much selling lined up at the door that there is not enough remaining investment capital in the world to satiate it? Our financial system of publicly traded companies collapses and cash (or gold) is king. This is what happened during the Great Depression and why we are very very close to this happening again.
I think the Fed should cut rates to 1% on posthaste - not Wednesday. Why the hell does decorum matter in a holocaust? The Europeans need to cut rates a full percentage point too, and not when they damn well feel like it in November sometime. What are these violin-laying Neros thinking? Don't they get it? It doesn't look like it.
We no longer have a "market" as you and I have come to know it. We have Saturn eating his children.