Watching Shoes Drop

Yesterday at the studio for my segment, just about everyone there was asking me about the market and what to do. One of the guys looked at his 401k balance while I was there and he became bummed out.

A friend tells me that people who don't usually follow the market closely are paying more attention than normal. Obviously this belies more fear or some other emotion as the market is lower and maybe the regular news covering it more than normal too. By the way, my visit to the dentist on Monday was similar.

As I have been saying that this is a normal bear market (regardless of whether that turns out to be true or not), what I have meant is how it is manifested in the stock market; the slow rollover, the feel good rallies, the magnitude of the decline and so on have happened before, despite some of the comments to the contrary.

The details of these events certainly can be different from event to event; Mexican peso, Kennedy assassination, oil embargo, whatever. One thing that dawned on me with this is the difficulty people who don't spend all day with the market might have in trying to understand what is happening.

Wachovia (WB) CDS spreads freaked on Wednesday, absolutely freaked. Did that contribute to the decline yesterday or over the course of the entire three days so far? And if it did how would someone explain what that means to someone else?

What about the action in Constellation Energy (CEG)? Friday it closed at $58.37, Monday $47.99, Tuesday $30.76 and yesterday $24.77. CEG appears to have connections to Lehman Brothers (sort of counter party thing) you can read about here. There is nothing simple about this story.

The move down in commodities over the last couple of months was odd for several reasons. Wednesday commodities panicked higher. Ninety day t-bills were yielding zero (CNBC said it was negative for a while, I was in the car when they said it and the low quote on Yahoo finance was 0.01). I haven't really even touched on the bailouts, bridge loans or shotgun weddings from the last few days.

Past events were probably easier to understand (Russia defaulted, Orange County went bankrupt). The current event is seems more complex but I would also note that this week might end up being the craziest of the entire bear phase. In addition to the stuff mentioned above, the price declines of some of stocks here and there has been bizarre.

This being the craziest week (if that stands up) has nothing to do with a bottom coming this week. There has been so much tumult in this bear market that I think the real bottom will be a quiet one.

No one can explain everything or anticipate all the shoes that will drop which is ok. I think the big macro (other than it being a bear market) is that right here, right now, things are a mess. I would brace for more fallout and reverberation but I also think the velocity will slow down markedly -- hopefully by the end of the month.

Comments

[Larry House:]

Thanks, Roger. Very balanced and good advice. I think this is a time to review one's portfolio and make sure one is comfortable with the allocation (still fits time horizon and risk profile) and is comfortable with ALL holdings. Make sure you are willing to hold through thiick and thin. It is impossible to invest reacting to each shoe that drops.

2008 Sep 18 05:17 PM