Bear Markets Seduce Investors

Tuesday, April 29, 2008 | 07:22 AM

One of the astute comments recently from Paul Desmond of Lowry's was that "Bear markets seduce investors to keep buying stocks."

Most investors do not study market history, but if they did, they would learn that the financial wreckage of the great crash of 1929 was not from that year, but rather, the bottom fishing in 1931 and 1932 and 1933. Bottom fishing is the killer.

Consider this discussion of similar bottom fishing, only this time, in a specific sector: Financials:

The credit crunch, despite the strenuous exertions of Bernanke & Co, shows little sign of easing, much less ending. Yet, financial shares have risen from the grave and are enjoying a dandy whirl. As Stephanie Pomboy, the perspicacious proprietor of MacroMavens, points out, this pop amid dauntingly ugly corporate reports by the banks and the rest of the financial gang is something we've seen before, and often.

"Since the wheels first started falling off last summer," she relates, "the financials have posted no fewer than 12 rallies of 5% or more.... It bears note that none of these stints, separate or combined, have precluded the financial sector from shedding 28% over the stretch."

Maybe 13 will prove the lucky number. Stephanie, though, sounds more than a bit skeptical, and so are we. At some point, we suspect, investors are going to sober up and stop popping the cork to celebrate the latest lender to take a multibillion-dollar bath.

Amazing -- 12 rallies of 5%+, and the sector is down 28% from when the Fed began cutting.

S&P500 Financial Sector


Great Expectations
MONDAY, APRIL 28, 2008

Tuesday, April 29, 2008 | 07:22 AM | Permalink | Comments (28) | TrackBack (1) add to | digg digg this! | technorati add to technorati | email email this post



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» BizLinks and Open Comments | 4.29.08 from Loren Steffy
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Tracked on Apr 29, 2008 9:45:21 AM


Irrational exuberance always leads to big losses.


Posted by: Marcus Aurelius | Apr 29, 2008 7:30:13 AM

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