Folks, I told you this the other day, and I’m going to say it again now: Relax. Don’t get caught up in what’s going on in these markets. When we have a 500-point day like we did yesterday—not to mention the wild ride we’ve already been on early in today’s session—we know that emotion has completely taken over.
Let me give you an example to help illustrate what’s happening. Let’s say I’m trading in the pit, and I’m willing to pay $10 for a certain product. It could be a commodity, it could be a contract—it doesn’t matter, $10 is my price. If I see a desperate seller walk in, guess what happens to that price? Maybe it goes to $9. Maybe even $8. If I were so inclined, I could put my hands in my pocket, watch and wait—that price may even drop to $7.
Emotions have taken over, and buyers have done exactly that—put their hands in their pockets and stepped aside. But as I said on Kudlow last night, I've been talking to a lot of professional portfolio managers and they are not liquidating stocks. They're putting on insurance—buying puts, for example. That's what makes this current correction a lot different than the one we experienced in '08. The pros aren't liquidating. They're rolling down protection and waiting to back up the truck.
I’ve never considered myself a technician. I look at fundamentals. Right now, corporate America is a printing press for money. The global growth story has not stopped—500 points does not change the fact that 100M people live in Shanghai, for example, or that the middle class in Sao Paulo is exploding. Proctor & Gamble came out with earnings today that crushed the Street. Eighty percent of what they bring in is from foreign markets.
Yes, we have an ongoing debt crisis in Europe. It’s a big problem, and it’s a major factor in this selloff. Italy will need to be bailed out eventually, but if the European Union doesn’t do it (half would love to, half would loathe to) Uncle Ben will open up the coffers. The world’s 7th largest economy will not be allowed to fail.
And yes, we have economic problems in the U.S. Big ones. But today’s non-farm payroll numbers actually gave us a nice surprise to the upside, as did hourly earnings, which had flat expectations but instead popped .4%. There are inklings of job creation despite the socialist headwinds blowing in from Washington.
A market in an emotional extension to the downside is a trap. Traps like these are usually followed by a huge move to the upside. I would not be surprised if we saw a tear-your-heart-out-of-your-chest-if-you’re-short rally very soon. Will it happen today? Next Tuesday? I’m not that good, folks. I don’t try to catch the falling knife. I look at value. I look at the price/earnings ratio, and when I do, I see some bargain-basement prices out there. As far as I’m concerned, it’s time to get out the wish list.
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