That's what the market seems to be feeling today. China was down 8.8%, something happened with Dick Cheney and just about everything is falling.True to this morning's video I expect to lag the market today and if you do too it does not really matter, it is one day. It doesn't really matter if you lag for a year for that matter (lag does not mean miss).
Disruptions like the one that happened (or perhaps still happening) in China are not new and will happen over and over.
I have written several times about looking at your portfolio and knowing what you are vulnerable to, I had an article run yesterday on RealMoney on this exact topic. Once you know your vulnerabilities you can decide whether you should cut back. This is especially relevant for things like emerging markets.
As best as I can tell my lag on the day is around 35 basis points so far. The things that should get hit especially hard are doing just that; getting hit hard. Regardless of which direction the next 10% is there is very little that is fundamentally different, nothing really.
I have obvisouly been expecting a correction for ages and despite that some of the TV folks are saying that this is it, for now the market is only down 1.09%. Regardless of what this does or does not become there will be nothing with this that the market has not seen many, many times before.
28 comments:
Roger, let's be logical about the current market action. Here are the facts:
1. Economy is slowing.
2. Corporate earnings are slowing.
3. Cheney et al have been doing all manner of saber rattling
4. Housing stinks and the consumer may be in jeopardy
5. Debt is high (margin and other).
6. Credit risk is not priced into the market.
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All of the above have had the market yawning. But something subtle happened yesterday, and I want to be the first to finger it as the cause of today's market correction.
7. Roger invokes the evil-doer Skeletor by posting the evil visage on the website with this comment: "On a personal note I have wanted to use a picture of Skeletor for ages; we may see more of him on future posts."
You, my dear sir, are the cause of all of this!
Hah!...Still under the weather with too much time on my hands. Please don't think I'm a troll!
invoking Skeletor as a catalyst for a market decline?
Hmm, I'll have to run the numbers.
Let me take a contrary view from Leisa, just for the heck of it.
1. Consumer confidence is at an all time high.
2. Corporate earnings are coming down a bit, but from record levels.
3. Some Democrats are advocating US defeat (or is it a redeployment?) and pullbacks from the world stage while at the same time voicing a trade protectionist agenda.
4. Housing is coming down to reaonable levels, thus basically shorting speculators and bringing equilibrium to the housing market.
5. Debt is high for those who shouldn't have been awarded credit or a mortgage to begin with.
6. Credit risk is priced into the market via sub-prime lenders, who have been savaged and/or are now out the business. Credit standards are now tightened and the problem will ease away. This will be excellent for the rental realty market.
Now, I do not necessarily agree with my own comments above.
My true feeling is that Leisa (who is obviously a highly creative and well-versed individual) may well be correct. I may be correct. It doesn't matter in the end.
We are living in an expansive world economy. Foreign markets are much larger than in the past and will correct when in excess. The US market will correct when in excess.
No need to panic unless you have invested as though you are invinceable.
T, I was merely trying to set up my Skeletor comment! But, you've invited a retort (even though you put in an elegant disclaimer)!
RE consumer confidence: I think that lemmings are probably happy as they take the plunge. I don't consider most consumers well informed,and I do not hold their confidence (or not)in high regard.
RE corporate earnings coming down "a bit"--I think that the stock price levels are still expecting the same rate of acceleration; accordingly any decline is inauspicious for stock prices.
Regarding debt...debt is high for "normal" people who were priced out of the market due to runaway real estate prices. I think that it is a mistake to believe that this is just a "sub-prime" phenomena. HOWEVER, feel free to point and wag your finger--you may even sing--off-key even, I'll not mind, "I told you so" if we do not see Wells Fargo and Wachovia--(I think that we can all agree they are not subprime lenders, and WFC has a 20% mortgage asset portfolio and WB now has Golden West)--do some significant bolstering of their loan loss reserves for (1) declining credit worthiness; and (2) adverse collateral to loan ratios.
Credit risk goes beyond the subprime market--but really affects any that are exposed to changes in forex or interest rates where small changes against big, leveraged bets mean much gnashing of teeth and margin calls.
I embrace who heartedly your closing comments. I surely make no claims to any special knowledge, and my grasp of these issues is tenuous at best.
I think the relevance of the consumer confidence number is not that consumers can tell anything about the direction or the health of the economy. It is that consumers will spend what they do have when they number is higher versus savings more when the number is lower. It is use to determine future consumption.
FWIW,
I went the mall (a place I studiously avoid) during the middle of last week to redeem some gift cards from the Holiday Season. I did not many conspicuous consumers other than myself. I have seen a number of sales going on by most of the retailers. Everybody was open for business, even the Kiosks (sp?) in the middle. Foot traffic was moderate. IMO Skelator was way cooler than He-man but I never understood why their mouths didn't follow the conversation when they talked. Was this the real beginning of outsourcing? Tom in Indy
Tom I am with you on avoiding the mall. Re the Skeletor comment if you look at the Wikipedia page (you would only do this if you are bored or strange like me) they went to surprising lengths to keep costs down.
Unemployment rates are extremely low, housing has had a soft landing (thus far), cap gains tax rates are low. However, I give a lot of weight to Greenspans comments regarding the impending recession (yesterday), 2007 or 2008. Not maybe, not if, but when. I am waiting with a list of great companies to buy when the lemmings are done. How 'bout a picture of Heman when the market reverses tommorrow? mcdwealth
anyone go double inverse last Friday?...are we having fun yet?
I have a 10% position in UCPIX as a hedge in my TAA porfolio. Unfortunate my timing was a little off (entered on 2/1). Also holding 30% cash. No stops have been hit thus far.
I have had a 5% position in SDS as a portfolio hedge which I have been tempted to reduce. I added on 2% on a break of this mornings lows - to now see the first 2% - now 2.27% down day in years.....
I entered QID on 01.29 and 2.17. I almost sold it all because Alan Farley was predicting (on RM) that NAZ might break out. I stood fast.
I also have some MZZ which I entered way too early. I bought QQQQ DEC 43 puts in Jan when they were cheap. Over the course of the last 30 days I've looked (intermittently) like a fool and a genius. But to keep Roger's pedagogy in mind...today I feel just plain lucky to be in the green on these positions.
The NYSE circuit breakers went off but this is no smash-down yet even if it may feel that way to some. The thing to watch is what kind of follow-through there is to the end of the week I think; after all, I was reminded at Ritholz's site (http://tinyurl.com/2sr8x7), that the last time the NYSE Comp collars popped was last June and the bounce-back turned out to be the beginning of a nice little late rally, only about 60% of which I've enjoyed because of my hedges though (shrug).
The Dow down over 490. This does not happen very often and all you people who hedged recently are lucky.
Fifteenminutes into the day, raised 20% cash, by one hour, all cash, even my metal position. When nothing is safe,preserve capital. All cash is extreme, but when one can....self directed ira...and is willing to have a plan to re enter...seems prudent.p.s.and leisa are roger are scarring me
The taliban claim an assasination attempt on Vice President Cheney. That means they set off a bomb somewhere in the same country. Pretty lame, really.
I call bs on all you people that claim you hedged recently and got 100% cash before the fall. Group of liars and thieves.
Anonymous: 1:12 pm.....please don't take any investment action on anything that I say. I certainly don't mean to scare anyone, and I regret if I've said something untoward.
Because I had my long positions hedged, plus I've carried a bit of cash in my pocket, the drop has not been of great concern.
ditto leisa -
Did the smart money get out of the brokers yesterday?
Everyone that posted here talks like they are up big today. I find this hard to believe seeing the Dow has never dropped 590 points/ticks intraday in my lifetime.
Johnny
GTY/Anonymous--I see no posts here by any that imply that any are up big. Until today, my QID, MZZ and QQQQ puts were underwater. I'm still underwater in MZZ. And, I'd be the first to say that my heavy cash position due to my perceived risk in the market kept me out of enjoying some of the gains that heartier souls enjoyed. No gloating or boasting here.
Leisa, do you frequent bill cara? If so could you offer a lens to his frame of reference. I just started reading him in hope of more attention to etfs. Skeletor, wow, might have his own website.
Johnny,
I definitely wasn't up big today...definitely wasn't up at all for that matter. Anyone who was up big today is a gambler not an investor.
I think the folks were just commenting on their hedges/defensive measures.
Didn't look that way to me Johnny, more like many of the posters here (including myself) didn't lose as much as they would have if they had been 100% long.
Conversely those who have been hedged and/or increased cash (since Spring in my case; I always was a lousy timer) didn't profit as much in the run-up to this sell-off either.
BTW, on a percentage basis a 590 point DOW intraday move doesn't amount to much (DJI ended 416 pts or 3.29% down); e.g, the 10/19/87 crash (Black Monday) was nearly an order of magnitude larger (DJI ended 508 pts or 22.6% down); the US market recovered reasonably quickly though, other countries took longer.
Anonymous 2:30 p.m. Yes, I frequent Bill Cara- and post there from time to time.
China tumbles... US stocks drops... Or the influence of the largest communist country on Wall Street.
The Cold War is definitively over.
Johny,
500 Dow Points, like the dollar, just isn't worth what it used to be.
I never try to predict Ms. Market, just see where she's going and dutifully follow. However, I think we saw a near term top in the market yesterday (2/26/07). I'll be looking for the next bottom.
Since I am wrong more often than right, I've learned that the only way to profit from my opinions is to bet against myself.
Does Roger or any other readers think todays events were linked to the 0.25% increase in the Yen lending rate and the carry trade?
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