I spend a good amount of the trading day talking to people from all walks of trading life. On Thursday I had a profound conversation with a guy I had never spoken to before. The conference call was the result of a heated conversation I was having with a money manager regarding Citigroup ( C). I was fuming about how the shorts were crushing the stock. It felt like it was Lehman, American International Group ( AIG), Fannie Mae ( FNM), and Freddie Mac ( FRE) all over again. It felt like the market was going to zero. I was really worked up. My friend interrupted me and suggested I hold on while he put another trader on the conference call. "Paul" (not his real name) also was worked up about how the markets were acting so irrationally. During our conversation, he uttered a thought in passing, "This feels almost like someone is dying." After hanging up the phone I looked up a book I had read years ago about grief. When my Mom passed, I was given "On Death and Dying," a book in which Elisabeth Kubler-Ross describes five distinct stages of the grieving process. Look how the stages have fit perfectly in the process of this bear market, or maybe the death of the bull market. Stage 1: Denial Grief: This cannot be happening to me ... I feel fine. Market: Previous Federal Reserve Chairman Alan Greenspan, in February 2007, predicted a recession. The investment community threw up its arms in disbelief. "How could he say these things ... he is just trying to stay in the spotlight or sell books," people said. Recall too how many CEOs told us that they were not exposed to subprime assets. Denial also ran deep during the summer of 2008.
Stage 2: Anger Grief: Why me? Market: Recall the outrage at Wall Street and Washington during the deliberation of the Troubled Assets Relief Program. "How can we spend $700 billion on bailing out Wall Street?" people asked. In fact, I think Lehman was allowed to fail because of the unfortunate timing of being at the brink in the very worst time: the anger stage. Public opinion was so animated against Wall Street, the crew in D.C. decided to let Lehman fail rather than fight an outraged public. Many see this as the biggest mistake of the crisis so far. Stage 3: Bargaining Grief: I just need a few more years. Market: Recall all the negotiations surrounding AIG, the nine banks to receive TARP money, what we received for the TARP investment-preferred equity, who got Wachovia ( WB), Citi or Wells Fargo ( WFC), .negotiations on all aspects of the bailouts, and the failures of institutions and industries (think General Motors ( GM), Ford ( F) and Chrysler). Stage 4: Depression Grief: What's the point, she's going to die anyway? Market: It seems that no matter the news or data, the market finds a way to turn it negative. Even surprisingly better data is met with a late day sell-off. We have seen this many times in recent weeks. Housing numbers have been better than estimates and some earnings surprises have been ignored. The market is in depression mode right now. The news is good, the market goes down. The news is bad and the market crashes. We are now very embedded in this stage. No one knows how long it will last but it clearly is the toughest to weather. Stage 5: Acceptance Grief: I can't fight it, so I am dealing with it. Market: This is when both Main Street and Wall Street throw in the towel. In the last stage of the dying bull, a definitive disinterest in the data and the daily machinations of the market are neither overly bullish nor bearish. The market volatility should plunge materially and volumes will be light. This is the final stage in the death of the bull. Then and only then can we begin to rebuild a new and stronger bull market. Just like the grieving process, this can't be rushed. There will be another economic upturn and another bull market. But no matter how much we try only time will heal the deep wound and imprinted memories of this death. Bear Stearns , Fannie Mae, Freddie Mac conservatorship, Lehman bankruptcy, AIG's loan and so on. Midnight mergers, bank failures all will remain in collective recollection. It has been an interesting year and a half. It's a period that will forever be written about. The really good news is that we are in the fourth stage of a five-stage process. Although no one knows how long each stage will last, I am optimistic that the fiscal and monetary stimulus will help make the next bull a strong one. Let the process happen and we will be there to ride the next bull.. Trade with your head, not over it.