James Altucher
Ugh. The past five days have been brutal. I've heard this phrase from many people: "I've never seen anything like this." It's true. And it's hard to be a buyer in the face of such a brutal onslaught.
I daytraded for a living in the brutal bear markets of 2001 and 2002. The single best way to make money in those bear markets was to buy high-beta stocks on sharp declines, when VIX was moving 20% to 30% higher in a day or so. Then hold on for dear life. The same technique has not worked in this environment, but the week/month/year is not over. Here are some thoughts and reasons to consider buying here.- The past five days have been the third-worst five-day period since 1932. (Side note: The biggest year ever for the Dow was 1933, when it went up 100% in the middle of the Great Depression.) People think now that we are heading for a depression, but nothing could be further from the truth. If there is no depression, then the market is cheap, even discounting earnings 20%-40%.
- The arguing over the bailout bill has been borderline insane. One media pundit said it was the kind of government intervention that caused the Great Depression of the 1930s. Again, nothing could be further from the truth. The Great Depression was caused by three things: increased tariffs, rising interest rates (i.e., the government was contracting the economy to avoid the speculation on stocks that led to the 1929 crash) and wage freezes. The government is doing the exact opposite here. Flooding the economy with trillions of dollars in cash -- trillions. That money will work its way through the banking system and will eventually inflate asset prices: commodities, stocks, houses, gold, etc. It's a tsunami of cash that will overwhelm anyone trying to dam it.
- The single biggest reason the stock market has fallen in the past five days is hedge fund liquidations. Of the top 20 hedge funds in the world, something like 18 are down 20% or more this year. They are getting redemptions, they are liquidating, they are selling stocks with reckless abandon to raise cash. Our job as good investors is to give them liquidity and take their bargain-basement merchandise off of their hands. Let's get their selling over with so we can make money.
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