I have noted my belief that just about every aspect of of the way this market has rolled over into what looks like a bear market and the big picture catalysts that triggered it has been very textbook.In that light it is possible that it could continue to be textbook throughout the process and on into the eventual real upturn.
If it does continue to play out in textbook fashion then the idea of when the time is right to take a more equitized position should be very uncomfortable--it should trigger an emotional response in people prone to emotion.
One of the things that makes a bottom a bottom is sentiment. Instead of being hopeful after a small bounce people should be very skeptical. Further there should be more talk of getting out of the stock market for good than there is now.
To really wrap your hands around this you probably need to think about what sentiment was really like during every other scary time for the market that you can remember first hand (the older you are the easier this is obviously).
Of course anything is possible. A bottom could be in, there might not be a recession and now could be the time to buy. I don't think any of that is the case but it could be.
This is the nature of feel good rallies. You wonder if this is the rally and often these moves draw people in only to endure a bit more whooshing.
Giving into emotion with a tweak is ok but big changes right here right now works against the history of how bear markets usually work. The reason I focus on this sort of thing so much is that I think knowing the nature of market cyclicals makes the job of participating in the market much easier.
If you are one to hold on no matter what then knowing how cycles work should make holding on easier emotionally. If you are one to make tactical changes then a little more understanding of cycles could provide a better framework for whatever tactical decisions you might make.
How 'bout them Davidson College Wildcats!
10 comments:
Roger, you make a couple of interesting observations today. One is the textbook feel of this, the other is sentiment. As one old enough to remember, I agree with you with one caveat. The inputs to sentiment are distinctly different this time. For example, for the first time, we have a deluge of stimuli coming from blogs, financial channels with their talking heads and gas bags, the internet in general with its never ending info- be it true or false. In the past, the information was significantly muted with a much slower transfer rate. You might comment about this aspect being different this time and what if any impact it has.
my initial reaction is that none of the things you cite is bigger than the market but i will think about it some and reserve the right to backslide on this in the future:->>
Rog, I've got an ETF question for you. I was thinking about investing in some biotech and came across an ETF fund. Doing a little DD i noticed that they do not look too stable. Across their funds they really don't have that much in assets and are probably not a go fwd. ETF provider. (XShares). I bagged the idea but it did raise a question:
What's the risk to investing in a "no name" ETF manager??? What happens to ETF holders if one of these guys implode?
With the proliferation of funds, I suppose that it is inevitable that some of these managers are simply not going to make it. An ETN...no doubt possibly problems. But what about an equity ETF?
this has been covered elsewhere.
an ETF is safe from a failure of the company running it (assumes nothing dramatic like the company looting the fund).
an ETN is a different story, they are debt obligations and depending on how the chips fall in that case the ETN might be ok or or might not.
I am confused about the Bear Stearns issue. Is the Fed on the hook for the bond guaranty regardless of the buy out price?
Isn't this a billion dollar bailout for Bear Stearns share holders?
I do not see this sitting well with the public or Congress.
I know the comrades at the fed will disagree with me.
Roger,
I just sent you an email + attachments to your yahoo account. Enjoy.
Roger, do we actually know how bad it is a Sterns? Do all these drastic and unprecedented moves by the fed prevent or put off transparency? Is Sterns simply a good buy, if so why is the fed involved?
I am disgusted the Fed is bailing out billionaires at bear stearns
Roger,
A bit of "venting", if I may, *s*. Regarding the whole Bear Sterns episode, like evryone else, I have my thoughts, but what REALLY gripes me, is yet another "Sunday night announcement".
The blogosphere is full of conspiracy talk, which I tend to dismiss, out of hand, but even I have to wonder. I can understand the first "Sunday Miracle". On Friday, suddenly, Bear is on the brink, teetering. I'm certain the powers that be were messing their pants, trying to figure out how to stave off a market disaster on Monday's opening, and through some "out of the box" thinking, pulled it off.
Now, we have JPM's "revised" offer, with the Fed's blessing...and, ( I think?), some additional "back-stopping".
Its looking like a college football team winning a crucial game, in the waning seconds, with a Hail Mary pass....and all of a sudden, the "Hail Mary" is in the playbook!
I'm getting SERIOUSLY annoyed!
Jan
Roger,
I have to take issue with your statement that an ETF is "safe" from a failure of the company running it.
If you look at the registration statement for most ETFs they agree to cover a limited amount of expenses out of their management fee. Any expenses, including derivative lawsuits will be covered by liquidating ETF Assets.
Upon the demise of an ETF manager there is certain to be a flurry of selling causing the unwary to lose their investment. What will certainly follow is the lawsuits that will drain the remainder of the assets.
Far from safe.
Jimmy
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