Friends
Today was what fear and panic look like in the markets. It was very reminiscent of late 2008 and early 2009. The market opened down more than 250 Dow points and pretty much fell all day long. The downgrade of U. S. Debt was the headliner of course, but Europe’s problems and the fear that we are entering a double dip recession were the main culprits in the stock market decline. The Dow Jones Industrial Average ended the day down 632 points which represents a decline of 5.52%. The S&P 500 keeps cutting through support levels and ended the day down more than 79 points or 6.65%.
Treasury bonds, the actual item that got downgraded, continue to rally with the 10 year yield at 2.34%. So much for logic. Sell companies with tons of cash, paying great dividends and selling products around the world, and buy downgraded debt. Ok then! Basically, the issue was major hedge funds de-risking and margin calls closing the clamps on levered speculators. If recession is on the horizon, the market is quickly pricing it in. If we avoid recession then stocks are becoming very cheap. But as we have pointed out, investors have very little patience these days and it is definitely a shoot first and ask questions later environment.
Gold continues to soar as oil continues its decline. The oil decline interests us in the fact that it will act like a major tax decrease for the U. S. economy should the decline hold or continue further. I know people don’t want to hear a positive slant on things, but lower oil prices and lower interest rates (and a very steep yield curve) should be a benefit to the lagging economy.
We are looking for opportunities to put some of the cash we have raised to work. The prices are getting cheaper every day. There’s no hurry and most likely no short-term catalyst, but prices are becoming very attractive. We expect continued volatility this week. The Fed meeting is tomorrow. We’ll let you know what develops.
Try to stay calm and think logically during this mess. You never know how far these things go, but they provide opportunity.
Hope you can have a nice evening everyone.
