Market Musings

posted by Chris |  The first quarter of 2008 has mercifully come to a close with the S&P 500 posting a 10% loss. Much to our chagrin we have experienced back-to-back negative quarters with the 4^th quarter of 2007 losing approximately 5%. 

Indeed the bull market that we enjoyed didn’t end with the classic large cap stock run up and along with profound investor glee, but rather with multiple shocks coming from the catastrophe that is the credit markets.

In a nutshell, the credit market debacle arose from the proverbial building a house of cards -- and then borrowing on it again and again.

It’s important to note that many Wall Street commentators have described this as the worse credit environment in the last 30+ years. The melt down of our credit markets claimed one of the iconic institutions in investment banking, Bear Stearns -- and there could be more. 

The Federal Reserve with Ben Bernanke at the helm, while late to the party, has been very aggressive in 2008 with its actions. I think the Fed assumed a housing correction and didn’t understand the full ramifications of the credit market melt-down ( not sure who did ), but the Fed has since cut the Federal Funds rate 7 times, and has created several other options for big banks and investment banks to access liquidity.

These steps, I believe, will go along way in restoring our credit markets. Is it fixed?  No. Are there more problems to face? Probably.

But I believe that we are turning the corner with this debacle. Please understand turning the corner does not mean it will end quickly, rather the credit markets will stabilize and some “business as usual” will begin. 

The credit market debacle and the issues that I have written on previously all have taken their toll on the stock market. My sense is that the stock markets will slowly start to trend upward through the end of the year.

Remember, this is a big picture process and I feel confident that the 300 point up days and the 300 point down days will continue, as volatility will not be removed from the market until many of the pressing issues have been resolved.

I feel that the fundamental reason the stock market will advance is that when investors are forced to put their money somewhere – the only reasonable investment at this point in time is the stock market – for the long term investor.  

I will continue to focus on our managers and our allocations.  

What Should You Do? 

- Continue to focus on the long view.

- Don’t obsess about the markets – that’s what I do.

- Do tell your friends, family & co-workers about me.

- Call or email me with your questions or concerns 

Other Posts By Chris

* A Pot & a Chicken: Spending Your Tax Rebate

* If My Identity was Stolen, it Could Happen to you

* Shaken, not Stirred: Thoughts on Market Volatility

* Financial Musings

* What the Dow Jones Industrial Average Means to You

Christopher J. Conner
Certified Financial Planner TM
Certified Fund Specialist
Managing Director
 
5200 W. Newberry Road E-7
Gainesville, Florida 32607
352-225-3132  (Fax) 352-225-3784
Cell 352-281-4646

 

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Comments

[Charles]

Yes, ladies and gentlemen, put your hard-earned retirement savings to work in a market in which corporations and the Federal Reserve are not telling their shareholders/stakeholders the basic truth about their financial situation, in which the US government is all-but-leaderless, in which even the best financial analysts refuse to comment on the consequences of a war with Iran (catastrophic) on the market.

But not before reading and reflecting on Nouriel Roubini's picture of the economy (www.rgemonitor.com/blog/roubini/252471/).

Now, economies are not markets. The market often does go up precisely when the economy is sucking the worst. But it doesn't go up entirely independent of the market. Financials, consumer stocks, home builders... these could all be down for a very long time.

Chris, I am a pretty optimistic guy. I managed to get through 4Q 2007 and 1Q 2008 losing only 0.15% while the S&P was taking a bruising. I think there's money to be made. But people should be very careful with the American market, with commodities, with all the "sure bets" out there. There is nothing to keep the American market from going sideways for 10 years, the way it did last time we had serious stagflation (see www.ermanometry.com/concepts/nominal_and_constant_dollar_data.php).

This is a great time to be reading up on investing, learning about stocks, and maybe even putting in some mad money-- money that one can genuinely afford to lose. At some point the world market, perhaps including the US, will turn around. At that point, one wants to be ready to go. But the bottom may well not come for six months more... or even longer. Investing is dangerous in The Year of the Rat (www.phoenixwoman.wordpress.com/2008/01/02/financial-analysis-year-of-the-rat/).

[Gary]

The long view is important, but you need to get there with an eye on the short veiw as well.