Seatbelts, Please!

Written on Sept. 18

Wow. What a week. And it ain't over yet. A few thoughts...

• This most recent round of financial crisis, the latest in a two decade string of upside excesses and bursting bubbles*, a story that started with "subprime" mortgages, and was loudly and repeatedly judged "contained" to same, has now become one of the all-timers.
• The intraday ranges, even the intra-hour moves, have gone from big to enormous to utterly ridiculous. As of this writing, today's range in the S&P 500 is almost 51 points. And that comes hard on the heels of three days of similar (or bigger) ranges in the index.
• An example: Goldman Sachs (GS) is down more than 10% on the day. And it's up about 18% off its intraday low. And yes, we know this information will be dated by the time we type the next sentence.
• CNBC, always a source of permabull entertainment, has become truly hilarious. The most recent example is this chyron between the talking heads and the ticker: "Crisis, Fear, Panic: A Good Thing." We are not making this up.
• That said, crisis, fear, and panic do make for the best long-term opportunities. We just think it's too glib to assume, let alone insist, that we're quite there yet.
• Another CNBC laugher: They seem to be calling themselves "your safe haven" in these challenging times. No punchline necessary.
• This is easier to type than feel, but without these sorts of dislocations, there would be no risk premium for stocks. Without short-term risk, there's no long-term return.
• If you have time, use it to your advantage. If you're dollar-cost-averaging, celebrate these fire sale prices by plowing more money in if you can. Prices might get cheaper still, but future returns on equities are all of a sudden higher, pretty much by definition. Capitalize. But you'll have to stay strong, and maintain perspective, to do so.
• We heard yesterday that mutual fund outflows were almost as big as they were in July, 2002, which was the first half of the double bottom carved out in October of that year. Because it reflects actual investor behavior, this strikes us as a potentially more useful contrary indicator than the headlines screaming across so many newspapers and websites.
• Generally we haven't supported state intervention when it seems more focused on propping up asset values than solving underlying problems. But when that trinity of crisis, fear, and panic have gripped traders, the system needs time to digest information in more deliberate fashion. Not to send prices higher no matter what. But to keep them from going lower so precipitously that the process of deleveraging--selling produces lower prices produce more selling produces lower prices--spins out of control, taking down nearly every player, not just the weak ones.
• As always: Risk management, people, risk management. If only Wall Street's masters of the universe had kept that objective in view over the last few years.

~~~~~~~~~~~~~~~~

* The S&L crisis, Russia, Mexico, Asia, the tech bubble, residential real estate, credit and leverage generally...