The Grinch Also Stole January

Sadly, we paid dearly for our moments of happiness in December. The Grinch not only stole Christmas, but he stole the whole month of January as well. Every component of our style/cap index gave back all of its December gains and then equal amounts or more in January.

It's hard to believe that any style/cap that lost nearly 5% led the pack, but the Russell 1000 and Russell Midcap Growth each lost a little more than 4.5%. Nothing else was even close, unless you consider the Russell 2000 Growth losing more than 7.5% as something to be pleased about.

All of the major indices were down between 8 and 9%, except for the Nasdaq, which excelled by losing only 6%. All of the value style/caps lost double-digit numbers. The worst of the worst was the small-cap value which lost 14.4% -- and that is for the month, not the quarter or the year or the decade. For some reason, mid caps outperformed large caps, and both small caps and micro caps were just downright miserable.

For the past three months, large-cap growth was the "leader" by losing only 11%. Small-cap value has lost more than 20% in the past three months; micro-cap value, nearly 25%. It just doesn't get uglier than this.

For the trailing six months, virtually everything is down 30% or more, and for the trailing 12 months, everything is down 40% or more.

Clearly, December was a bear trap, one really nasty bear trap.

As we noted in the previous issue of "What the Market Wants," January would be a key test, and it flunked. Public companies have indeed released, day after day after day, quite dismal earnings reports, for the most part. And to add its voice to the dirge, the government issued its share of dismal reports . . . on labor, gross domestic product, personal spending, and just every other economic indicator possible.

The dismal earnings reports weren't really that big a surprise, although the report from State Street Bank (STT) with its admission of conduit losses that had supposedly adequate reserves did surprise the market in a very negative way. In general, the forward guidance was muted, rather than outright negative, and in fact, a few companies such as IBM had reasonably positive comments looking forward.

Of course, earnings reports continue to be released at the time of this writing, and unless I am deluding myself, it seems that, as we go deeper in the quarter, the forward guidance has been a tad more positive.

The new President is moving forward with his gigantic economic stimulus program, apparently with reasonable support from Congress. If Congress approves the bill by mid-month, there could be reason to forecast improved consumer confidence in the six-to-nine-month period ahead, which is typically about how far ahead the market looks.

We are currently testing the lows of the late November period. Whether or not those lows will hold depends on the progress of the economic stimulus bill, the continued earnings reports from public companies, and, hopefully, the absence of any new major negative surprises. Historically, the really bad news has been released early in the quarter, and we fervently hope that is the case this year.

Stock position: None.

Comments

[ROLEX18:]

The Grinch stole money from long investors only, he rewarded the shorts.
Ask yourself: Did I or anybody else forced you to buy stocks ?
It was your decision on whatever it was based on, you watched too much CNBC, you read too long Business Week, you checked Forbes picks it was you and only you whom Market made look stupid in your own eyes, I can not tell you how to save your ..s going forward, but I can promise you that buy&hold is dead for the next 20 years, you want to continue as before, then I please you next time don't blame the Grinch.

Feb 10 07:07 AM

[TeresaE:]

Until the government and mega-corporations figure out that "globalization" equals "destruction of small business" this is going to be a hard turn around.

Small business is the red-headed step child. Except this child were the giants best customers. And when we give billions to mega-corporations and they rush out and dump money into every country except ours, the bloodshed will just continue.

Every empty building, every foreign contract, every laid off employee only equates to one thing: fewer customers for all.

The geniuses are firing and bankrupting their best customers. Great business plan they have.

Feb 10 08:36 AM

[Jason Rines...:]

I am the contrarian on buy and hold to your statement of 20 years but let me explain: Buy in April after Q1 earnings release, go company specific examining cash flows and management and plan to hold for five years. Sectors to look at are Energy, Consumer Healthcare, Higher Education, I.T. in that order.


On Feb 10 07:07 AM ROLEX18 wrote:

> The Grinch stole money from long investors only, he rewarded the
> shorts.
> Ask yourself: Did I or anybody else forced you to buy stocks ? <br/>It
> was your decision on whatever it was based on, you watched too much
> CNBC, you read too long Business Week, you checked Forbes picks it
> was you and only you whom Market made look stupid in your own eyes,
> I can not tell you how to save your ..s going forward, but I can
> promise you that buy&amp;hold is dead for the next 20 years, you
> want to continue as before, then I please you next time don't blame
> the Grinch.

Feb 10 10:24 AM

[Jason Rines...:]

I am not a big fan of Goldman Sachs but when they released the negative GDP report in November showing -5 GDP in Q4, -3 GDP in Q1 09 and -1 GDP in Q2 09 I felt it was spot on with my own numbers. My comments from a year ago show -10 GDP coming off in 2009, I was off by a quarter. The second part of my forecast was another -5% to -10% coming off during an additional two year period. This is a class depressionary scenerio but it's being compressed a bit due to speed of technology and information. Now with the stimulus and quant easing the second half of the nasty ballgame will be runaway inflation, likely to begin in 2010-2011 and more energy specific and trickle down effects.

As to your wondering why mid caps did better then small and micro it's very simple, cash is king. Try getting funded right now if your a small cap like my companies. I can get growth funding if I want to give up 51% of my business at profitability every year except 2008 and break even that year. No thanks, people still tell me I can sell an igloo to an eskimo at full value so I'll keep bootstrapping with the sales team. On the bright side, the trials have honed a lot of skills that will be useful in the recovery period beyond 2012.

Feb 10 10:33 AM

[know nothing:]

"Grinch stole january" and Febuary, and March, and ..........2012

Feb 10 04:31 PM