Waxingandwayneing’s Weblog

October 16, 2008

A Toe in the Water

Filed under: The Economy — waxingandwayneing @ 8:09 pm

You would have to be near dead to be unaware of the wild fluctuations in the stock market over the last two weeks.  From the session high to the low, the major indices have seen unprecedented movement on intraday activity.  Fundamentally, how could a 1,000 point swing be justified in one day?  What news could possibly spark a recovery from a huge loss in the same day?  “Oh, we meant to say our sales were UP 50% not down 50%….sorry!”

I think someone is messing with us.  Or several someones.  Clearly there is money to be made in the recent market declines, but when do you get in?  When do you even dip a “toe in the water”.  I almost did last Monday.  I thought the market had bottomed and was ready to rise.  In fact, Monday showed nice gains and the turn looked strong.  But then Tuesday was weak, followed by a an even more dismal Wednesday.  Now today, the market is up 401 with another large intraday swing.  What gives?

The bottom line is that no one really knows.  The financial news hacks are trying to sound smart, which daily proves to be difficult.  The technicians try to argue for support at various trend lines, but have difficulty trying to advise in a market unconcerned about charting.  After all, the entire system is collapsing!  This week, earnings once again became a basis to measure stock value.  Go figure!  The optimists who tried to drive the market up earlier were met with the reality of corporate performance in the presence of a recession.  (You mean, we now have to be concerned with how these companies actually performed?)

This is no market for the timid.  I do know that there are bargains out there to be had.  Many company have been unfairly hammered.  But, just when I think it is time to allocate funds back into the market, the market falters.  With the beta as high as it is now, waiting is prudent.

With the FDIC insurance now at a higher level of $250,000, our cash is safe.  Please don’t be one of those imbeciles who withdraws your cash because you think there will be a bank run.  Measure your risks based on facts, not on illusion.

My advice is to stay liquid for awhile longer.  I would want to see an established recovery in the Dow showing at least 5 up days.  If you feel that toe is getting dry and needs to be dipped in the water, then invest slowly and knowledgeably.  Earning 3% on your cash is a lot better than losing half of it on a stock play.

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1 Comment »

  1. Only 31 years (tomorrow actually) have never seen this and a lot of my friends are freaking out. However, I am looking at this as a positive and actually going into my 401K and increasing the percentage of which is taken out of my paychecks. Call me crazy, but if I can buy more at a lower price I may have more in 20-25 years when retirement is a lot closer.

    Comment by Alex Zamansky — October 17, 2008 @ 9:24 am


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