Patience and courage. That is what is needed here. I have covered market panics in 1990, 1997, 1998, and 2001, and each time, after much wailing and gnashing of teeth, the sun rose the next day and the markets recovered.
Can I tell you the markets will be higher in one month? I cannot. Can I tell you I believe the markets will be higher a year from now? Yes I can, because I believe they will be.
If you don't believe there is buying interest, just look what happened at the open in the U.K. a few hours ago: After dropping 200 points at the open, the FTSE rallied over 250 points (about 5 percent) in less than an hour, before dropping off its highs. It's now positive. (Follow Europe Markets Here).
So what do traders want?
We listened, and we sold. It was widely noted on Friday that every time the President, Mr. Bernanke, or Mr. Paulson were on, talking about fiscal or monetary stimulus of one kind of the other; the markets dropped. Traders believe that the Street has voted, and given a thumbs down to the proposals as too little too late. They wanted more then, and now they want even more, so yesterday and this morning I received calls and emails demanding:
1) More aggressive rate cuts. Fifty basis points won't do it any more; they want 75 basis points TODAY (before the open); some have been calling to demand a 100 basis point cut. This, they argue, will be the start toward a sustainable bottom.
The ECB will be under even more pressure to cut rates, in concert with our Fed.
2) More aggressive fiscal stimulus. Brent Budowsky, a columnist for the influential Washington paper "The Hill," is floating an idea widely heard among some to give the stimulus package a little more zip: a $1.5 billion profits tax on oil companies to fund an employee tax rebate for small businesses to hire new workers, as well as aid to veterans and other groups. He also wants the use to demand that Saudi Arabia use its influence to lower the price of oil -- and if it doesn't suspend arms payments. These neo-protectionist calls would have gone nowhere a year ago, but in an election year they will get a hearing.
3) Also being heard: demands that the government step in and backstop the bond insurance companies, essentially acting as a guarantor of last resort.
Oddly, many of these calls are coming from the normally laissez-faire crowd on Wall Street.
So are signs of a panic good or bad? Professional traders have been bemoaning the damage done recently but have been baffled by the lack of truly panic selling; as a result, many like Lowry's have noted there is still no signs of a sustainable bottom.
We may be getting one now. There is certainly an ocean of cash that has been sitting on the sidelines waiting to find a reason to invest. Even many bulls will tell you there is no reason to do anything now, that there will be plenty of time to pick a bottom, that this will be a long process.
Except, the guy who starts the process first will make the most money and get the bragging rights--just look what happened to Paulson (the hedge fund manager) after he made the earliest call to get out of subprime this time last year. Now the guy's made a fortune and practically been knighted by Wall Street.
No, I have watched the sharks circle around building stocks since August; they lost every time they dipped their toe in, but they're still sniffing around. They began nibbling on Citi weeks ago, but were burned again when the kitchen sink quarter didn't materialize and Citi threw themselves in with the gradualist crowd.
But they are still there, and just like Rod Stewart used to sing, "Still I Look to Find A Reason to Believe."
We are trying to find a bottom. This is very complicated, because of several factors:
1) Problems with mortgage insurers are adding an additional layer of complexity to the subprime story because it is not clear how solvent they will remain; their failure could lead to another series of writedowns;
2) Not clear how much the U.S. consumer is slowing down, but traders are clearly worried. According to TrimTabs, income tax withholdings rose only 3.4 percent year-over-year in the past week, which indicates the U.S. economy is not adding any jobs.
3) Not clear how much the global economy is slowing down, but traders can see signs it is happening:
-- In Europe, The housing market has weakened in Spain and the U.K., and continuing exposure of European loans to U.S. subprime loans is a drag on their fortunes. Commerzbank and WestLB, two large German banks, both warned of losses in this area yesterday.
-- Emerging markets have also taken a tumble--is there really a shift in sentiment? I noted Friday that for the first time in memory there have been outflows two straight weeks from global emerging market funds. Bears argue that Chinese banks may also have significant exposure to subprime U.S. mortgages.
-- The Japanese Finance Ministry noted slowing growth in several of Japan's regions.
-- The Baltic Dry Index, a measure of the cost of sending dry goods overseas, has fallen to a six month low, indicating shipping companies are seeing lighter demand for their services.
Still, European officials as early as this morning were insisting Europe is not heading into a recession.
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