NEW YORK ( Real Money) -- Don't just stand there. Sell, especially if everyone else is selling or will be selling. Let the S&P 500 futures, down so huge, dictate your emotions, and, if we don't open down big consider it a blessing and bang out as much as you can because everyone is too complacent about this Ukraine thing, whatever the heck it is (you better not be or you are being way too glib and thoughtless).
There. I did it.
I totally spelled out the mindset that has been used pretty much every time a foreign financial or nonfinancial crisis has occurred, a process that has only been exacerbated as the futures and the ETFs and, most importantly, the algorithms that have come to take control of our stock market.
I don't want to discuss the absurdity of it. I just want to explain how it happens and why. The stock market simply isn't able to discount this kind of news effectively because of its commoditization by the much more powerful instruments that dominate trading -- a main reason why I wrote Get Rich Carefully -- and we have to accept it and profit from it.Now, I can name the caveats. Those who ignored the Southeast Asian and Russian crises near the end of the 1990s got walloped initially and there was a degree of common sense to that because we didn't realize at the time how many domestic hedge funds were linked to those areas and had to sell something to raise cash, so they sold what's easiest and that's the U.S. equity market. It could be like the European crisis that peaked out in November of 2011, with Italian bond yields at twice the level they are now, something that directly impacted us because our banks had such huge and uncordoned exposure to those markets. Plus, war fears don't peak immediately and wars, civil or otherwise, can escalate. We know that when Egypt fell we had several days' worth of selling. Libya's changing of the guard dinged us. All Israeli wars have impacted our markets. A standoff over Syrian chemical weapons caused our markets to take a momentary hit. There have been a half-dozen instances where North Korea has sent us down with sabre rattling. Even turmoil in emerging markets without follow through can create selloffs, as we know from Cyprus, Argentina and Turkey most recently. But in each of these nonfinancial squalls, the selling let up rather quickly, and all you had were sell short-and-cover trades that roiled our market, shook out a lot of fearful souls and then created a runway to start anew with stronger hands.
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