Insanity, Armageddon on the Horizon

Brutal Day on Wall Street

Today, the S&P closed down to its lowest level since 1997 on brutal declines across the equity markets! Fear is simply out of control in this insane market. Investors have run for the exit, as Armageddon must be near! Why do we say that? It's simple, the yields on short term treasuries declined to almost zero! That is truly crazy and highlights the insanity in the market. Near zero or even negative yields after transaction costs means that investors are willing to pay the government to hold their money as they do not want to invest anywhere else. I don't know that we have ever seen this before, and that is crazy. Fear is driving the volatility and extremes in this market, and today was the crowning moment.

Is this the Bottom?

What now? Market Beating Stocks thinks that we have reached the bottom for the stock market. That's right, we think this is the bottom. We know we are going against the crowd, but we are now seeing even greater extremes than we saw at the market top, and we view that as the indicator for a market bottom. Make no mistake, the S&P market index is dropping 50 points a day with great regularity and as long as volatility stays high, that is always a risk. But we think when investors look back at this time, with hindsight they will recognize this period as the market bottom. While we do think the equity market has hit bottom, we think the economy has yet to see its worse days. The economy will get worse and will carry negative growth and higher unemployment well into 2009, and maybe even 2010. But the stock market is at an extreme and has more than overcompensated for the struggling economy. It may take a while for the market to realize that, but think the worst is over for equities.

Sell or Buy?

Unless your selling for tax purposes prior to year end, now is not the time to sell. As for buying, we think now is a good time to buy, but would caution that the market is still too volatile to go all in. If you are going to buy, invest gradually over several months. Don't go all in until the volatility levels decrease, as risk is just too high.