Whackage! Worst Week Since September 2001
By the numbers, it was not a pretty week: The Russell 2000 index of small caps got shellacked for over 12%; Nasdaq took a nearly 11% plunge, and the S&P500 dropped 9.4%. The Dow Industrials fared best, losing "only" 7.4%.
As I noted on CNBC yesterday, this is a bear market, and the play book calls for selling into rallies (as opposed to during the Bull, when you buy into dips).
After whatever bounce we end up getting, a measured move to Dow 9,000 is a significant possibility -- we put it at a better than even money chance.
>
via WSJ
Saturday, October 04, 2008 | 07:35 AM | Permalink
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the only thing going up is USD!
I can't figure it out, at this rate,
the Fed can print alot more money
and issue T bills as demand is incredible.
How do you explain that Barry ??
Posted by: rickrude | Oct 4, 2008 7:58:13 AM
Rick,
Europe entered a recession -- in some nations, a deep one is quite likely -- and the ECB will begin cutting soon.
Japan and Asian slowing, expect to see their currencies weakened as a response.
As far as currencies are concerned, its a race to the bottom!
Posted by: Barry Ritholtz | Oct 4, 2008 8:02:39 AM
The attempt at asset price inflation will fail and people will be pissed when they get their statements in Oct, Nov and Dec. The belief that the bailout was going to 'stabilize' markets/banks will be shown to be false as Krugman points out. I'm young enough to look at it as a buying opportunity. Democracy Now had a guy on discussing this as the end to the second American guilded age. Yep, I know it's left wing but I try and not self-select for information I agree.
Posted by: Thomas | Oct 4, 2008 8:03:58 AM
Barry,
I don't look at the actual internal metrics of the stock market as you do, I am more a follower of the broad economic numbers, both here and worldwide. But certainly our horse appears to have thrown a shoe here, and the folks in our national government who say they don't follow the equity markets are simply prevaricating. I should more rightly say, they are simply trying to keep the equity markets from their continued decline.
I have mentioned before that I read something in the Economist more than 15 years ago that was an epiphany for me, that in a broad article on the investment cycle, (not the business cycle), that one should probably only be in stocks about 50% of the time...the rest of the time bonds gave superior returns. And the key was liquidity. When liquidity was increasing, it was time to buy stocks. When (global) liquidity was decreasing, it was time to exit. I have tried to Google it up, but have been unsuccessful to this point. All my partners, however, have a copy, and most have been ok during this severe downturn.
I do think we have an opportunity here to see if central banks can do what appears impossible to me, to reflate a rapidly declining worldwide economy, by increasing liquidity, and in Bernanke's case, by increasing it as much or more than the law allows in the USA.
I will certainly be watching...
Posted by: Bruce in Tennessee | Oct 4, 2008 8:09:31 AM
In other words, Barry, the dollar, measured by any of the items on that chart, had a fabulous week - one of the best ever. For a holder of cash it was a huge week.
Don't be so negative.
Posted by: wally | Oct 4, 2008 8:34:10 AM
QID...up 23% for the week.
I still hold all of it, as recent data shows a laughable amount of shorts in QQQQ and its top names, even though shorting is not banned for them. In addition, the Commitment of Traders report, which the CFTC puts out on Fridays for that Tuesday, shows Nasdaq 100 options and futures traders are far from too pessimistic...they are essentially flat. This means sentiment is not too bearish as to call for a bounce. Traders are not protected to the downside and could flush their longs. S&P small and large speculators are, believe it or not, net LONG 41,200 contracts as of Tuesday. No fear seen.
Posted by: Steve Barry | Oct 4, 2008 8:52:00 AM
One other thing before we head to the mountains:
Just got off the phone with Schwab. The increase in protection for non-retirement funds in banks, as you know, was increased in FDIC limits from 100k to 250k.
What you may not know, is this protection is for the next year only.
To me, this shows the slipshod way the entire bill went through. If Joe Small Business puts, now, 250k in one bank, in 12 months that account will go back to only 100k in coverage. This is WORSE than before the limits were increased, in that if some trusting soul does increase the amount of funds to these higher limits and the bank fails in two years, only 100k is returned.....almost a bait and switch idea.
Of course, anyone but a nimrod would have made the increases permanent.
Posted by: Bruce in Tennessee | Oct 4, 2008 9:15:42 AM
"As far as currencies are concerned, its a race to the bottom!"
Shouldn't the dollar led the way to the bottom considering the massive acceleration of the budget deficit (national debt doubled in the last 8 years). Few nations can match the current US rate of debt increase. There's no end in sight.
Posted by: Getting Higher | Oct 4, 2008 9:17:28 AM
Posted by: Steve Barry | Oct 4, 2008 8:52:00 AM
SB,
it's amazing, no? I hear ya, from the other thread, about warning people since 2006...same response: "you're chicken little, etc...on y on"
worse, is that, a few, come back, ports down 40-70%, already, with: "Wow, you were right...How did you know?...I wish I would have listened..." It's really saddening.
The 'buy 'n die"rs', the $ cost averagers, the 'I've 30 years til' 'retire==mental'
still priming the Font of the Eternal Bid, are not only going to Cost themselves, but, eventually, the rest of Us, the rest, of what's left of the U.S..
I'm really beginning to think that John Galt was right...
Posted by: Mark E Hoffer | Oct 4, 2008 9:20:37 AM
The more I think about it, the fact the speculators are long S&P futures, when the shorting of financials is banned, is ASTOUNDING. They should be shorting the futures to hedge. Anybody out there in commodity trading?
Posted by: Steve Barry | Oct 4, 2008 9:21:52 AM
The best advice I ever got was when a well known PE guy told me that "the stock market is just a confidence game"
Before every trade I think, "who has enough confidence in their position to hold on to it in the face of the volatility of this bear market"
Everytime this year my answer has been the bears and it still is.
I will continue to short at resistance until this changes.
Posted by: Vermont Trader | Oct 4, 2008 9:32:22 AM
2 comments:
1) The "Deflation Tracking Chart" in the article (let's give it a proper name, eh - we all know what's not hot!) leaves off all flavors of Treasury Bills and/or Bonds as asset classes. These are up nicely this week and also for the past 52 weeks. (Less-so for treasury money markets.) The last bubble?
2) Agree w/ Bruce in Tennessee re: FDIC limits should be permanent. It's bad enough that the rules are changing on a daily basis, and worse that they are changing in so many stupid ways that simply add fuel to the fire and break down trust even further... but when the rules changes aren't even permanent, it becomes very difficult for anyone to make the necessary risk/reward calculations to invest wisely. ("Okay, so last week we had to split our $2M working capital out into 20-25 banks to receive FDIC protection --- just about guaranteeing that some of our money would get caught up in a failure --- but as these banks fail, we can roll that up into 8-10 remaining good banks since the limit just went to $250,000 -- except that we have to start searching for another 12-15 banks because a year from now the limit will be $100,000 again and we'll need to be back into 20-25 banks, unless Congress does something yet again... maybe we need to hire someone to keep up with all these changes, except damn, it's a tough economy.
Can you spell unnecessary overhead expenses for small businesses and medium-sized corporations?
Posted by: Wisdom Seeker | Oct 4, 2008 9:34:56 AM
To Thomas regarding the Economist article. Please let us know the headline of the article and we will try to find it online.
Why is the Dollar going up?
The entire investment community in the US are selling their Rubles, their Won their Euroes their Turkish lira and are converting them back into USD.
Posted by: TED | Oct 4, 2008 9:44:09 AM
1987 1994 2001 2008
September/October
Anyone ever hear of the old idea of "seven year remission of Debt" Maybe if you don't do it it bites you.
Deu. 15 Deu. 31:10
Now is the time to plan for 2015 if we get through this one the next one will be worse.
Posted by: Oldman | Oct 4, 2008 9:44:25 AM
Bruce in TN: Sentiment is too bearish, although see Steve Barry's excellent comment on the extent of short positions. So I am calling a rally here. This is a confidence game and we are at an inflection point. The key issue is that Treasuries and the $ are vulnerable here to a very strong reversal. (See my post under Stewie Griffin cartoon last night).
This is just a trade, however, I have a target of 880 on the S&P and I will get short at resistance - as VT Trader points out, that is where the money is made in a Bear market.
Posted by: leftback | Oct 4, 2008 10:02:38 AM
"Why is the Dollar going up? The entire investment community in the US are selling their Rubles, their Won their Euroes their Turkish lira and are converting them back into USD."
And what do you suppose will happen to the dollar once this unwinding of foreign investments is completed?
Posted by: bsneath | Oct 4, 2008 10:12:18 AM
bsneath:
$ in toilet, gold over $1000. I hear ya.
Posted by: leftback | Oct 4, 2008 10:31:56 AM
I would think precious metals would be rising as a safe haven, but the opposite is occurring. Strange days indeed.
I shall keep an eye out for "man biting dog" and "Cubs winning World Series" for verification.
Posted by: Chief Tomahawk | Oct 4, 2008 10:32:19 AM
Barry, you and Charlie Gasparino were a close second to Dick Morris lambasting Alan Combs at the VP debates. Minorly interesting, both conversations made mention of "talking points."
Posted by: jtaylor118 | Oct 4, 2008 10:32:27 AM
@Chief Tomahawk: gold and silver trade inversely with the $. The $ has shown recent strength mainly because of repatriation from the EMs and also Euro weakness. I have been buying gold this week on weakness (bull market for precious metals: buy on dips). Reflationary printing world-wide and issuance of new debt in the US are extremely bullish for precious metals here.
Posted by: leftback | Oct 4, 2008 10:44:39 AM
Re: Dollar going up.
No one is talking much about it, but the Fed has been pumping many tens of billions of dollars into overseas money markets over the past few weeks and arranged swaps with various central banks. My guess is that this as been used to support the dollar in preparation for the selling of US Treasury subprime bonds that will be used to finance the big giveaway.
While the Euro Central bank will probably cut rates, their troubles are minor in comparison to ours and we are the suckers paying the big price. I noticed Trichet encouraging passage of the bailout; easy for him to do on someone else's nickel. I suppose he looks on Bernanke like the Euro government leaders look at W.
The Fed cannot sustain the dollar's price with all the giveaways.
I just wish there was some reasonable for small fry like myself to buy foreign European central bank bonds directly.
Posted by: Mike in NOLa | Oct 4, 2008 10:50:25 AM
we have had a delusion in this country that assets should only go up, that we can manipulate money supply so that we can assure ever spiraling asset prices. Well, at some point there has to be a relation between what we produce and what we earn. My 401k has taken a big hit - so be it - I will be better off in a world of "mark to market" that in a fantasy world where people with 20K annual incomes were approved for 750K mortgages.
Posted by: fresno dan | Oct 4, 2008 11:06:28 AM
Mike in NOLa:
Did they get the lights back on in Houston yet? That SRS finally came around, eh? Shame I am always early. Looks like it is ready to supplant SKF on the next plunge. I agree with you that the $ is a pig wearing lipstick.
Posted by: leftback | Oct 4, 2008 11:09:55 AM
@leftback,
you should be careful out there. We just had a credit bubble pop, not a internet stock price pop.
Remember that dollar you left with Wall st., who then turned it into ten dollars with this magical "leverage" thing of theirs?
well it's all unwinding, and it's about to turn back into a single dollar. DEflation through credit deflation.
When everyone says "de-leveraging" what they mean is $10 is becoming $1 again, but the value backing it is the same (or not dropping as fast), so it's worth more, get it?
Fed can print all they want. It means little when FRE and others are unwinding 100 - 1 leverage or something ridiculous huge like that anyway.
Wall st is going to EVAPORATE trillions of dollars. Just going to burn 'em up /write 'em off.
In this humble traders judgment, that means go long dollars, not short.
Posted by: steve from asia | Oct 4, 2008 12:26:08 PM
In a crisis , the currency of the union of States(USD) will be stronger than the currency of the union of countries (Euro).
(in a crisis countries take time to resolve issues or may not and start a war, where as we have one single authority).
(my 2 cents on s&p targets)
S&P500, rallies from here , between 1060 and 1099, then goes to 1182, then drops to 960, then rallies to 1140 and test back to 960 in the summer of 2010.
Posted by: Sam Jacob | Oct 4, 2008 12:45:34 PM
