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Barry Ritholtz
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Risk returns. That's the briefest way to describe what was a painful week in the markets for many around the world. Amid the global equity rout, U.S. stocks had their worst weekly fall in four years. Tuesday's plunge wiped out all of 2007's gains and was followed by the deadest of dead cat bounces. Friday's late selloff here was attributed to traders wanting to go home flat for the weekend. By the numbers, the Dow industrials slid 4.22% while the S&P 500 gave up 4.41%. The biggest losers of the bunch, the Nasdaq and the Russell 2000, regurgitated 5.85% and 6.2%, respectively. It wasn't just equities, either. Also suffering were (in order of the pain they endured) gold, REITs, commodity futures, corporate junk bonds, emerging-market bonds, and the dollar. The asset class winners: Treasuries, investment-grade bonds and crude oil. The many factors that have propelled markets higher since the summer are showing decreasing efficacy. Like a magic spell that grows weaker with each incantation, chatter about liquidity, Fed rate cuts, how contained the housing debacle is, and of course, the guaranteed soft landing is having less resonance each time it's repeated. It's a quiet week for data. There aren't a whole lot of earnings reports, and there are even fewer economic reports. But the monthly nonfarm payrolls report is scheduled for Friday, and it may take on disproportionate importance -- subsequent revisions notwithstanding -- depending upon what else happens during the week. To help you make sense of it all, we have gathered up some very instructive articles and commentary. By the time you get through this week's Linkfest, you will not only know what happened and why, but you'll be in a much better position to deal with what comes next. That's why I am here ... this is what I do. So pour yourself a cup of joe, limber up your clickin' hand, and get busy:INVESTING & TRADING First up: This free global interactive map from the The Wall Street Journal shows exactly how markets around the world fared all week. The Wall Street Journal reported that Market's Fall May Augur a Waning Appetite for Risk. Talk about soft-pedaling a headline! (free) The first casualty of war is the truth. The same can be said for market corrections. Ever since global markets cracked, we heard all sorts of bad dope. Here are the Top 10 Myths of Tuesday's Correction. Here's Faber on liquidity, the Yen, and Gold. Meanwhile, Doug Kass was all in/leveraged short Monday. Barron's cover story goes the other way: "Still Betting on the Bull." "When financial markets fall, conventional wisdom says the little guy feels the pain while the rich emerge largely unscathed." This time may be different. (free WSJ) "Financial stocks make up one of the more important sectors in the broader market, and investors look to those names at times to gauge the overall health of equities. Right now, the sector has pulled back along with the rest of the market, and some analysts say it's reaching critical levels -- where further weakness could spell trouble for stocks." (The Wall Street Journal's MarketBeat blog) Which leads us to: "Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley, which earned a record $24.5 billion in 2006, suddenly have become so speculative that their own traders are valuing the three biggest securities firms as barely more creditworthy than junk bonds." Goldman, Merrill Almost 'Junk,' Their Own Traders Say. (Bloomberg) Indian Market Broke Before China: Indian Markets have been softening since early February, giving up over 1,000 points from their February peak. They finally broke trend days before the debacle hit in China. The usually chipper Jim Jubak asks Which market will blow up next? (MSN). Meanwhile, MarketWatch's Mark Hulbert reminds us that "One day's sell-off does not a bear market make." The infamous December Low Indicator is now in play. It's not China, it's the Economy (Stupid!) Be sure to scroll down to the list of WSJ headlines from Tuesday morning. Almost overlooked in this week's mayhem: Warren Buffett's annual letter to shareholders. I drop the F-bomb on live CNBC Tuesday, and no one even notices.Well, at least the weather is nice here in the Northeast! The convertible comes out of the garage for some easy drivin'. Meanwhile, regardless of your market bias, we may see things get more complex over the next few months. Whatever you do in the coming days, please, trade smart.
SENTIMENT/PSYCHOLOGY What was the Correction's Impact on Sentiment? (Barron's) If you don't have a Barron's subscription, go here. Dan Gross' blog notes what poor timing magazines can have. The March 12 (current) issue of Forbes plugs a story on its cover like this: "Has the Bull Market Just Started?" During Tuesday's trading, market internals were simply horrific. Just how bad? According to Jason Goepfert at Sentiment Trader, the New York Stock Exchange's advance/decline was 451/2,949, while the up/down volume was an astonishing 24,752,200/2,844,344,000. That's more than 100 shares traded down to each one up. The Nasdaq A/D was 281/2832, while the up/down volume was 126,657,900/2,885,607,400. From a sentiment perspective, this typically doesn't bode well for the future. (The Wall Street Journal's MarketBeat blog) The Fear and Greed Index by James Montier of Dresdner Kleinwort in London got this one right.
FEDERAL RESERVE Greenspan's use of the "R" word was quite mild. Of all the things you can blame him for, this week's action isn't one of them. "Booming demand for energy and commodities by China and other countries has contributed to the surge in their prices in recent years, Bernanke said." (I'll just file that one under "D" for "Duh.") Bloomberg reports that Bernanke Says Globalization May Push Inflation Higher. (Also, Video) Rounding and the Impact of News: A Simple Test of Market Rationality. (FRB Research) As expected, Fed members came out and offered a Soothing Fed Balm. What else would you expect them to say? The calming words are part of their job descriptions. Just imagine what would happen if a Fed chairman ever announced: "Holy $%&*! What the hell is going on in these %$#@ markets? Geez, I hope no one has found out that inflation is just outta control." It'd make Tuesday look like a picnic...
HOUSING Fed Doesn't See Subprime Mortgages as Threat: "Federal Reserve officials don't expect mounting losses on subprime adjustable-rate mortgages to lead to a credit crunch that could significantly harm the U.S. economy." (Bloomberg) Or not: Uh-oh. The housing bust is just beginning. (Slate) Mortgage Defaults Spread, Snagging More Borrowers. (free WSJ) How big is subprime? 6% or 50% of the Mortgage Market? (Nouriel Roubini's blog) Drag From Housing Could Persist. (free WSJ) New-Home Sales Plummet To Lowest Level in Four Years. (MarketWatch) Also, Sales of vacation homes sink 37% in '06. (Los Angeles Times)
MEDIA, TECHNOLOGY & SCIENCE Market Events & the Blogosphere: I emailed two dozen top financial bloggers -- all of them saw their traffic spike from 20-100% on Tuesday. Dow Jones glitch explained: After a Rough Morning, A Data Backup Jolts The Blue-Chip Average. (free WSJ) Google & The Beeb hook up. If you miss Saturday's eclipse, you have to wait until 2018 to see one as good: Eclipse set to be 'best in years.' (BBC) Joost: Bringing TV to the Web. (Time) At the Oscars, Apple(AAPL Quote) introduced "Hello," its new iPhone commercial, which generated pretty good buzz. Also: The iPhone Highlights The Difference Between Invention And Innovation. (Techdirt) Microsoft(MSFT Quote) Vista Sales Slip. Also: Microsoft dead last in security test. Spacecraft return Sun panoramas. (See this for some awesome photos.) Is XM-Sirius Good for Consumers? (free WSJ) Antarctic ice melt reveals exotic creatures. (Reuters) Wanna buy a simple new DVD player? You might as well try to buy a new rotary phone. The 51 Best* Magazines Ever.
MUSIC, BOOKS, MOVIES, TV, FUN! Weeks like this send you back to the basic primers for some guidance. Any of these three books will give you a broader perspective:- Devil Takes the Hindmost - Bull: A History of the Boom and Bust, 1982-2004 - The Go-Go Years: The Drama and Crashing Finale of Wall Street's Bullish 60s In all the mayhem this week, I overlooked our usual Friday Night Jazz session. Such are the casualties of market corrections. No matter, I have been listening to tunes that are a bit less mellow this week. With the recent death of my iPod (which I used for blood pressure-lowering respites), I have no "special place" to go. Instead, I've been rockin' out to How The West Was Won -- an astonishing display of rock and roll mastery by (arguably) the finest rock and roll combo ever to take the stage anywhere: Led Zeppelin. Oscar Nominees and Winners. Top Ten Signs You Have A Bad Stockbroker. (from David Letterman) Dismally amusing! StandUp Economist's 10 Principles of Macro-Economics. It's too amusing to pass up: How To Shave The Modern Male.
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