Wednesday, November 19, 2008

Will Resilience Be Rewarded In the Markets?

The dramatic decline of certain stock prices is deeply incredulous to me.

Sometimes, I sit staring at the screen just awed by the intensity and extent of the value erosion. It really makes me wish I had more capital as to me, so many stocks are undervalued at the moment. At the same time, I am having to sit on my hands to keep myself from trading because I know there's a great potential for further declines however unreasonable and irrational I feel these declines may be. The markets just have to work through all the deleveraging and nothing but time can achieve this.

I only trade for about three hours a day, but lately, I've been starting to wonder how people who are obligated to sit through an entire session can look at it and not be affected emotionally or psychologically.

It takes resilience to be trading when the markets are in such a traumatic downtrend.

Will this resilience be rewarded over the longer term? And to paraphrase my boss, is there a longer term?

Today, the market's selling off on fears of the debate over whether or not to
save the auto industry.

Whilst the impact of a hypothetical bankruptcy or a hypothetical series of bankruptcies related to the auto industry will be much less extensive than the Lehman and Wamu bankruptcies were to the financial markets, I think the Republicans are overlooking the potential ripple effect that further job losses will have on the US economy. If we do not stem job losses, homes will continue to be foreclosed and assets will continue to depreciate across the board. Speculation about future write-downs related to credit card and student loan defaults has already been offered up as the next crisis-within-a-crisis by the perpetual pessimists. However, it is unfortunately realistic speculation. How much of that speculation is already priced in? And if it isn't already priced in, will we, with our battered-up portfolios, be able to withstand one more battle?

Now these are all depressing thoughts, but we need to stop the bleeding whilst our economy still stands a good chance of being salvaged.

And the only way this could be achieved is for the US government to step up and really calm the markets - however unpopular the notion to rescue the auto makers is.

As I finish this post, I'd like to pose the question: Is it better to now keep our 2 cents and think a penny saved is a penny earned?

Now if everyone thought this, our economy would definitely be beyond salvaging.

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