Monday, October 06, 2008

EVERYBODY PANIC!



The TSX was down over 10% this morning for whatever reason fancies the average investor. The Toronto market is down over 30% in the past 4 months and the S&P500 is down over 30% in the past 12 months. I'm sure some new doom is sure to envelope our country, shuttering our businesses and turning us all into stark raving mad lunatics.


Well maybe it isn't quite that bad and to this observer of human behaviour, it seems a little overdone now. I have recognized that timing the market bottom is an impossible feat but there are two things that are common about market bottoms:

1) Despair and hopelessness. Check.

2) Massive redemptions of mutual funds. Check. See story here.

11 comments:

jesse said...

In terms of housing I think we're somewhere between Denial and Fear.

mohican said...

I'd agree with that assessment for the vancouver market jesse.

For the stock markets I think we are just past the panic phase.

macho slob said...

I agree with both of you. Even with this crazy financial mess, I think the stock market is much closer to the bottom than our housing market. I started nibbling and actually got 4 stink orders filled today, and lowered the 17 others that did't get filled to insanity levels.

Not sure if stocks have reached crash status yet, but it would be the first one in an election year since the Great D.

As for our housing market, you'd think the last few fools would be snapped out denial by the approaching recession.

sutluc said...

I think the stock market has a long way to fall.
I see a depression type event underway, not a recession type event.
I believe it took something like twenty-five years for the dow to break pre-depression highs.

I expect "stocks" and "mutual fund" to become words not spoken in polite company.

patriotz said...

As for our housing market, you'd think the last few fools would be snapped out denial by the approaching recession.

Keep in mind that the market topped out in 1981 and had been falling for a year before the recession hit in 1882 and everyone knew the jig was truly up. Until then the price drops had been seen more as a buying opportunity.

Now it appears that we are seeing a market turn and onset of a recession at about the same time. This time the drop may be spectacular.

condohype said...

I'm not a finance guy but I believe "irrational exuberance" works both ways. Right now, the stock markets are getting thrashed by fear hype much in the way local real estate became inflated by condo hype. It's all over the top. Eventually, things come back to reality. I expect continued volatility in the markets but eventually things will start making sense. This doesn't necessarily mean great things but at least the bad stocks will be more clearly separated from the good.

e8005 said...

Like sutluc says, if one believes that the stock market will remain depressed for several years (which looks possible), doesn't it make sense to sell now? The admittedly meagre interest on GICs/savings account looks a lot better than a prolonged slide down another few dozen percent, should the financial system completely fail.

Seems very risky to have money in the market right now, and I can understand why near-retirees would be willing to sell at a 30% loss or so.

Biz said...

You have opened the eyes of the people who closed with fear. Timely article during this period of wall street issues.

Keep doing this good work

BizBlogged - Finance blog,finance,economics,Corporate finance,Personal finance,Investing,Marketing

condohype said...

For near retirees, yes, it could be time to sell if you can't handle a lengthy time frame for stocks to recover. What's funny about the panic is how broad it is. Many strong companies with great balance sheets are getting seriously hammered right now.

Radley77 said...

For the stock market, I think we're in panic mode.

For the Calgary housing market, we are seeing a mixed bag of signals...mortgage arrears are trending higher but well below cyclical average (anxiety), sales are now up year over year after large drops last year (hope), building starts are now building at the slowest pace since 1986 (capitulation).

John Authers from the Financial Times had an intersting video about technical analysis of the stock market...

Trends In Markets - John Authers

After having a large weighting of my portfolio in cash since mid-2007, I'm inclined to believe that we are approaching a bottom in the stock market.

My guess for the bottom for the S&P 500 is 850 or slightly above the 2002\2003 bottom.

Radley77 said...

I work for an energy trust in Calgary, and our company has been slaughtered on the stock market lately. We are currently paying a remarkable dividend of 34%. The market capitalization is much less than our book value. This looks like incredible value.

I think there are some good buys in this market. Still too scared to do more than some toe dipping for now though.