|Semiconductor Index (SOX)||378.84||-9.35|
|Amex Gold Bugs Index||145.88||-0.64|
|10-year Treasury Bond||3.28%||-0.073|
Government-Sponsored Agita: Folks will of course be staying tuned to learn exactly what precipitated this. If it turns out to be derivatives-related, as some expect, things could get very messy. Interestingly, Fannie Mae has been considered by many to be a much riskier stock, a view which I share. In any case, Freddie's announcement saw the stock open down about 20%, while Fannie opened down only about 4%. Stunningly, despite a double helping of bad news and the weaker opening after Friday's reversal in technology, the tape was bought pretty aggressively for about 20 minutes. To me, that made the day look rather binary. Either they were going to turn it, or it was going to get smacked. A rescue seemed unlikely today, so down appeared to be the most probable direction, and down it was, such that a couple hours into the day, the big averages were down about 1%, and the Nasdaq was down about 1.5%. The upside leaders of yore -- tech, finance, biotech, and housing -- today led the charge to the downside. In essence, the first couple hours captured almost all the action, as the markets basically spent the rest of the day going sideways, near the low end of the range, which was where they closed. Some of the speculative darlings actually held up pretty well, even though the SOX was hit for 3% and biotechs for a similar amount. Big-cap tech hung in there, though the same cannot be said for housing stocks, which were roughed up from 3% to 5%, plus or minus.
Fine-Tooth Company-Combing: Those sobering words aside, Glickenhaus offers his own prescription for success: "People will have to study companies, find those that can do abnormally well and distinguish them from those that will have average performance and those that will have sub-average performance." (He actually mentions a couple of ideas that he likes, which seem pretty sensible to me.) That is precisely what I believe. Folks who want to own stocks will have to practice extreme due diligence in their stock selection, because the risk is so great. He himself thinks the stock market will be in a trading range for a decade.Continuing in the same vein, yesterday's New York Times carried an interview with Richard Bernstein that touched on similar points and is also must-reading. As a preview, here is Bernstein's take on Greenspan et al.: "The Fed, in their extraordinary fashion, is keeping excess capacity alive by lowering the cost of capital. The marginal players are still able to raise capital. ... The more they ease, the more the threat of deflation stays alive. One of the amazing things is that capacity utilization continues to fall even though the Fed continues to ease aggressively." In-the-Know on Flow of Funds: He goes on to debunk the myth that corporate balance sheets have strengthened, by noting that while cash flow has seen an improvement, absolute debt levels remain high. This bolsters his view of the second half: "We think the economy and profits will be weaker in the second half." He also underscores the point that speculation continues to dominate the environment by noting that despite folks' chirping about the dividend tax cut, they've been chasing after stocks that don't pay dividends. That is precisely what's been happening. Successful money managers who've been around a long time and seen it all have a view that is reasonably similar. In addition to Seth Glickenhaus, think of John Templeton, the late Leon Levy, who articulated his thoughts in The Mind of Wall Street, and Warren Buffett (though I think Buffett is more sanguine about the economy, at least based on what I've heard him say). Consider that these fellows fall on one side of the argument, and that opposing them are Wall Street/Bubblevision talking heads, out espousing a bullish view. Just ask yourself, which side of that bet do you want to be on? I have made no secret of where my allegiance lies, and likewise, my often-stated view that the second half will be a major disappointment, both in the stock market and the economy.