We all want to know when the market is going to bottom. Well, right now it’s definitely at SOME kind of bottom. So start dipping your toes in if you’ve not been paying attention for a while (buy some of the Canadian banks that Obama likes so much) – there are great sales out there right now. Of course, some prices are falling merely because markets and people are unsure how to value certain companies, especially with this much government intervention (and because the US gov’t itself still doesn’t know what price tag to put on all the bad “assets” (fake would be a better word)).
This past Thursday, markets began to retest their November 20th lows. November 20th was the “first” bottom (of a “crash” that began in late September/early October – a really protracted crash). But this past Thursday, February 19th, was definitely when the next “crash” began. Who knows where this slide’s bottom will be. All I can tell is that
(1) it seems to be happening faster than the Sept/Oct. one, and
(2) not as many people seem to be as surprised about it – in fact there’s definitely no surprise with this one.
One commentator I heard back in December thought that if the November lows were tested again (and by now we are well below those lows in both the DOW and the S&P), then the possibility was high that the DOW would fall to about 6000. So far he doesn’t look that far off-base. The DOW today was at 7114 – it doesn’t have much to shed to get into the 6000 range.
If you want to be convinced of the size of this second crash, just look at what happened to Manulife’s stock (TSE: MFC). Or look at Royal Bank (TSE: RY). The world’s seventh-largest bank is trading for less than 50% of what it was one year ago.
The good news with all of this chaos is actually not that hard to find. First – to use myself as an example – it’s become a great learning experience for what recessions might start looking like in the newly hyper-globalized, instantaneous wireless-transaction, print-money-on-demand virtual economy. I’ve learned alot about how to better value companies in terms of which ones are really “necessary” and which are more discretionary to have in my portfolio. Second, it’s going to become apparent increasingly which companies have been the better managed throughout this whole mess. And when investors come back, these companies are going to be rewarded for their good management.
For example, look at some healthcare companies like CML Healthcare. Their stock has been surprisingly stable over the last six months, although it did weaken somewhat with the broad-based sell-offs. No distribution cuts here.
Other companies, like Cineplex Galaxy (CGX.UN) have even grown somewhat – people haven’t stopped going to movies (at least in Canada). So these two are part of my picks for defensive stocks going forward.
All in all, this recession/meltdown (recession seems like too mild of a word for it; it’s not really an honest recession; it’s more like “dirty-Enron-bombs” that were spread through the global economy) shows me the importance of investing in what you understand – that old Buffet adage. It’s precisely CEO’s and other I-bankers LACK of understanding what they were invested in that created the wind that blew the house of cards down.
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{ 6 comments… read them below or add one }
Are investors scared? Is that why they are pulling out of the stock market? Are investors skeptical of the governments solutions being able to fix the problems?
It seems like the market drop is a response to the government solutions and investors are concerned that too many people are abdicating their responsibility for their actions and begging for the government to fix their problem.
http://www.weeklypoint.com/2009/02/23/dow-just-above-7000/
I really think they need to just let the economy hit bottom now so it can start recovering on its own. All these games the government is playing is merely delaying the inevitable.
Jennifer, I agree with that point, and so do many commentators. One doesn’t have to be a laissez-faire capitalist to see that indecision and procrastination on the part of the gov’t mean that it’s going to take longer to evaluate what each company is really worth (and in the case of Bank of America and Citigroup, whether there is even any common stock equity left at all).
Dan, ditto. Though by the sounds of it most individual investors ARE out of the market now, insofar as mutual funds have had to seriously sell off (and if most investors are like my parents, mutual funds might be all they know – unless they’re active investors like you and I who regularly do our own research and make our own trades.
As I’ve said before, I think this “stimulus plan” is kind of a joke. Job #1 needs to be supporting those of us who are willing to go out on a limb, start small businesses that create jobs, and then help those small business grow with good tax policy. But you already know how I feel.
Great post!
TAM, I know… it’s hard to make a judgment yet about the stimulus. I know where I come down on it theoretically, but we’ll have to see how it actually plays out. I definitely agree that the US needs to update its infrastructure… it’s very sad to compare things like transportation to European countries and Canada. I think the car has come to dominate the US way too much.
If you look historically at these types of environments, take the 80s as an example, when larger corporations had issues (banks) — people just jumped overboard. When they landed, however, they still try to make money. The birth of the founding companies of Citigroup happened.
Financial turmoil breeds new companies. As “The Almost Millionaire” said, we need to support these smaller businesses.
Great article — thanks for it!