Crazy Times

By Jim Wiandt

The wild instability in current markets has me thinking...

"Washington Mutual Becomes the Biggest Bank to Fail in U.S. History," blares a headline.

"Bailout Talks Implode During Day of Chaos," screams another.

That can't possibly be good for the markets, right? You'd have to think that the Dow and the Select Sector SPDRS Financials ETF (AMEX: XLF) will be taking another nosedive today unless the government gets it together. In a major league show of brinksmanship, Paulson et al. announced the big bailout assuming (correctly) that if you don't follow through and actually fund the plan, that it could exacerbate the situation. I mean if you make the announcement, at that point, you can hardly NOT fund the bailout, right?

Crazy times.

And our job is to tell you what it means for you as an index and ETF investor. Does it mean get ready to buy the crap out of the panicked bottom of this market (risking trying to catch a sky full of falling knives)? Or should we sell ALL our ETFs NOW while there's still liquidity in the market and go buy a plot, a bunker and maybe some physical gold and plant a big potato field somewhere in Idaho or North Dakota?"

I'm leaning slightly toward the "buy the crap out of the market" camp, but not by much. Frankly, it feels like a bit of an Alice in Wonderland fantasy scenario where you've got John McCain "suspending" his campaign, his running mate frankly looking, uh, ditsy—when they allow her to talk—and really just a sense that maybe no one really knows what they're doing. I mean, really, how much confidence does Paulson inspire?

But SOMEHOW I think the world will survive all of this drama... even if it takes us 10 years and a lot of potato eating to wade our way out of it.

And honestly, I'm not doing much with the portfolio. I definitely feel like there are very likely a few more shoes to drop, Khrushchev-style, onto the financial table. Don't get me wrong. These ARE important times... and you do get the feeling that we are at an inflection point in history. But panicking and making wild moves nearly always turns out to be the wrong things to do, whether they're driven by greed or fear.

I wanted to follow up a bit on the Lehman story and the Opta ETNs. It turns out (and we're still digging around this a bit) that those funds were almost entirely drawn down to nothing before they shut down ... with only a million bucks or something left in them. We're working on the postmortem of that story (and looking at their much more significant structured products as well).

The ETF/ETN industry (and U.S. finance, frankly) will never be the same after this latest round. That much you can count on. By and large I think it's healthy... or at least it is as long as I'm not forced to actually move to that bunker and grow potatoes.