Carnage

I was wondering if the economic recovery bill would be a ‘buy the rumor sell the news’ event after it was passed.  We saw the markets mildly up late last week.  However, the unthinkable happened today when it wasn’t passed.  Traders were shocked.  The Dow went from down 170 to down over 700 in a matter of minutes when it looked as if the bill wouldn’t pass. Traders were literally staring at the televisions watching the votes as if it was a sporting event.  There were simply no bids.  Stocks across the board were down, some over 20% today.  Pure panic.

All I’ve heard the last two weeks is that we’re going to have a bipartisan bill.  I actually started to believe it.  What was I thinking?  I heard Pelosi’s speech today and realized that it’s business as usual. If you didn’t know any better, you’d think Pelosi wasn’t for it after listening to her.  But, it wasn’t just Pelosi talking bad about this bill.  Many Republicans voted no and were against this bill.  It’s really a strange situation.  You have a bill introduced by the President and the Secretary of the Treasury.  The Democrats were for it, tried to rush it through before McCain came up to the Hill.  They said they had a bill when there wasn’t a deal done.  Republicans, on the other hand, weren’t for it.  They got some changes in there but obviously there weren’t enough to support the bill.  Americans didn’t want the bill and mainly because of that, it didn’t get passed.  Congress didn’t want to get tossed out of office.  Politicians were on television saying they were voting for it but then said they hated it.  That doesn’t exactly exude confidence.  So, it didn’t pass and down we went.  And, it was nasty.

I’m upset with the politics involved and I’m upset that at the end of the day it didn’t pass.  I truly don’t think the average American and the average politician realize how bad the market really is.  Perhaps they’ll understand after today.  It’s not just the equity markets, it’s the credit markets.  Interest rates in treasuries are plummeting as investors are panicking.  Money is coming out of everything and going into treasuries.  Once again, there is real panic.  The credit markets are simply frozen and the people saying we need to get this passed quickly aren’t lying.  I see these markets freezing up.  It’s not good.  Something has to be done very soon or we might think this was a mild day.

If you’re asking if it’s time to sell, the answer is no.  You can’t sell on a day when there’s a huge surprise and panic to the downside.  With that said, if you’re overexposed right now (and that’s anybody with 1 stock), you have to use time stops to slowly get out.  That means averaging out so that you don’t miss the inevitable rally.  Fear is at an extreme high and markets are oversold.  Oversold can stay oversold for some time as I’ve been writing, but if you’re not forced to sell, don’t.  If you’re in 100% cash, look at the bargains.  There are plenty out there.  Apple, for example, is down 50% from its high around $200.  I’m not buying yet, but it’s on the radar.  I’m not one of those guys that all says buy the dips.  But, I think as I mentioned the other day that you have to look at everything you own at time like this and decide what do you need more of at a time when it’s on sale.  I think we’ll look back in a couple of years and wonder why we didn’t buy the biggest banks in the world and very cheap prices after the government was doing everything they could to make them profitable and they were able to gobble up competitors and bargain basement prices.  If you’re not panicking right now and you are properly allocated, then you can use this time to rationally look at the bargains and decide where to put your capital.  Days like today remind us where we are overallocated.

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4 Responses to “Carnage”


  1. 1 Lee September 29, 2008 at 6:54 pm

    Karl,

    Market bubbles must be allowed to correct themselves. Keeping them proped up will only prolong the pain. The market needs to correct itself. It is however, sad to think that the bubbles we are in were created by Greenspan, Paulson, the Bush administrattion and the like.

    Watch Ron Paul on the subject as he seems to be one of the few who really understands the situation.

  2. 2 keggerss September 30, 2008 at 9:08 am

    Actually, the “bubble” started in the late 1990s by the Clinton administration who wanted to put everybody in homes regardless if they could pay them back or not. That started it and everyone didn’t change it in the 2000s.

  3. 3 lee September 30, 2008 at 4:01 pm

    Agree, and those who were responsible for their actions should not have to pay for those who were not.

  4. 4 keggerss September 30, 2008 at 4:29 pm

    I’m willing to invest in bad securities. I’m not paying for anything. I would love to invest even more money in this plan but I’ll have to just use the tax dollars they have.


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