No Patience, Some Hope. . . Looking for a Bottom
CNBC.com Senior Writer
Fair or not, this week's break beneath the Dow lows suggests that the market has run out of patience with Washington and is willing to keep selling until someone comes up with a solution.
With just a month elapsed in the Obama administration, investors are indicating that they're not happy with the raft of bailout plans put forth. The Dow lows of Nov. 20 failed a retest Thursday, and the blue chip index is now at levels not seen since early in the Bush administration.
Market experts say the trend is a clear sign of frustration with the nation's leaders.
"What happened here is there was an expectation, however irrational it was, that the new administration would have had the answers. Since the election, they've had all the time in the universe to lay this out and save the patient," said Michael Kresh, president of M.D. Kresh Financial Services in Islandia, N.Y.
"It was an expectation that over the last two weeks we would've had rock-solid solutions," Kresh added. The lack of clear cut plans has "caused those people holding on for that to walk away."
Indeed, Obama's election fate seemed to turn after the mid-September failure of Lehman Brothers and the subsequent contagion it caused in the financial sector.
He rode a wave of voter demand for economic solutions to a November victory, but since has struggled to convince both Wall Street and Main Street that his administration has answers to the problems bedeviling the economy.
"Sept. 15 basically turned the tide for Barack Obama," said Quincy Krosby, chief investment strategist at The Hartford. "He came in on bad news with the hope that he had the plan to fix it. People do expect better news from Washington, and (the administration has) ratcheted down expectations so that he's not judged immediately by the plans coming out of Washington and the effect on the economy.
"Nevertheless, human nature dictates that the clock is ticking. He can't change that clock, he can't make that clock tick longer. It doesn't work that way."
Now For the Good News
Yet there could be a light at the end of this dark market tunnel.
Both Krosby and Kresh, among a number of other investment experts, say the breaching of the November lows could represent yet another capitulation moment for the market.
While they say it may not yet be time to go full-bore back into stocks, investment-grade corporate bonds represent solid places to put money, while other equity plays such as preferred stock funds also hold allure.
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"The reason you need to still have a considerable allocation to stocks is that when the relief rally comes, and there will be a relief rally one of these days, it will be very powerful," said Peter J. Tanous, president and director of Lynx Investment Advisory in Washington, D.C. "So you need to stay in and recoup your original equity losses. But it is wise today to reconfigure your portfolio to the new realities, and the new realities are there are ways to make equity-like returns with far less equity risk."
Those investments, Tanous said, include preferred stock funds not weighted toward financials, master limited partnerships--and an allocation to gold, which has soared to the $1,000 an ounce range since the latest wave in stock selling.
"It's a safe haven and an inflation hedge for people who believe this big stimulus package is going to cause some kind of inflation," added Richard Sparks, senior analyst at Schaeffer's Investment Research in Cincinnati.
No Time to Hesitate?
In the bigger picture, investors who have gotten hammered by the swift losses of the market could risk an opportunity to recover some of those losses when the market swings back.
By Kresh's estimations, investors who buy in now can put themselves on a five- to seven-year recovery plan, while those who sell or wait could face up a 20-year span to make themselves whole again.
"What we're seeing right now suggests that we're near the bottom of the markets overall," Kresh said. "Although the market is going down daily, it's going down on low volume. So it's not as if the sellers are running to the exits in great leaps and bounds, it's that there are no buyers."
At the same time, Krosby sees a concerted effort by business owners and individuals to do their part, though they continue to wait for proposals from the White House, such as a drop in corporate taxes, that would give them hope for the future.
There will need to be a confluence of factors to restore market confidence.
"If you believe that the economy is in fact going to turn around six to nine months from now, and if you take a contrarian position that all this pessimism is good for the market," Krosby said, "ultimately you could dollar-cost average into companies with good balance sheets and are going to survive."
After all, at some point the down cycle is going to break, and some think this is as good a time as any.
Tanous is among those who favor the controversial mortgage rescue plan the Obama administration floated this week, believing that it could bring the kind of immediate results that the stimulus or the bank bailout could not.
"The first thing we should do is take comfort in the fact that we have had nine recessions since the end of World War II and we've had nine recoveries," Tanous said. "So the chances are very good that we will recover--only this will be a little longer and a little tougher."