February 26, 2009
markets dropped a little more today than they did yesterday, by -1.22%
for the Dow to -2.38%
for the NASDAQ Composite. The
to close at 1,391,.
to close at 7,182,
and the S&P
to end at 753.
up a bit at $44.50
a barrel, and gold fell back to $942.60.
was unchanged at 44.66.
Slow moves like this have a way of insidiously sneaking
up on us without raising the alarm that would attend their moves if they
One fact is clear, the economy is no longer in the kind
of accelerating free fall that we saw last October.
Every living investor
today... even someone like myself who grew up during the Great
Depression... has only post-World War II experience to guide him or her.
Over the decades, we've developed rules of thumb that have worked for the
Fed-driven recessions we've experienced during our post-war working lives.
Among these are the ideas that recessions behave like inverted bell
curves, that the stock market bottoms at the inflection point (point of
steepest descent) for the economy 6 to 9 months before the economy
bottoms, and that the moment of greatest pessimism is the best time to buy
(or that you should buy when you see excellent companies with strong
balance sheets and recession-resistant products selling for a substantial
discount from their fair-weather prices). And like most stock market
rules, these rules work until they don't. Japan is the bellwether example
of this. If you had jumped back into the Japanese market in the early
90's, thinking that its market carnage was just another correction, you
would have been creamed by now. A few years ago, Japan finally began to
pull itself out of its "lost decade" thanks to a surge in global
trade. Now global trade has gone south for the winter, and Japan is
already in the throes of "its worst recession in more than 50
years", with worse yet to come, Perilous outlook for Japan.
But when I read articles like, Jobless claims push higher,
or Worse before better,
inclination is to take the contrarian position that the worse the news,
the better it is for the future of the stock market... that the bad news
has already been priced in. In other words, my own post-war experience
with inflationary recessions threatens to lead me down this same primrose
path I'm warning against. It's hard for me to override 40 years of
experience just as it must be hard for others.
Given that last fall's decline began with threats to
the safety of money market funds and bank accounts, this article might be
of interest: Federal
Deposit Insurance Corporation paints bleak banking picture, $26 bln 4Q loss.
Also of interest: Bond king Bill Gross hints that he's quitting on stocks.