Whether we are near the bottom and how much longer fear and pain must be endured is certainly the issue de jure. I have listened to many of the TV guru's and a number of other experienced investors trying to form my own opinion. I have concluded that Psychology rather than economics is the key.
Unlike earlier corrections, crashes, etc. this episode seems to lack an economic crisis. There are no Asian crisis', Russian or Brazilian problems, Taiwan earthquake or derivative based instability. The factors that seem to be at work are:
1. Interest rates, which are under the control of the Fed and this is an election year. Thus the fed can "fix" this market downturn if it wanted to. The cost might be inflation later. The politicians couldn't care less about some inflation later as long as it was after the election. Since this factor is under the control of Greenspan et. al. Fear is less than earlier market episodes when financial systems faced real danger that could have gotten beyond the point where they could be fixed. Most investors know this and are not as afraid because of it.
2. Debt. A lot of us who participate in the financial markets have some debt and figured we could always sell something to pay it off, but why sell investments appreciating at 20-300% per year to pay debt at 7-20%? Most margin players are in deep trouble and those still alive are hoping they can hold out until things improve. I recently took a trip and ran up one of my credit cards. I had planned to sell a little bit of stock to pay for it. Since I no longer have any stock that is anywhere near a 52 week high, I decided to do a balance transfer to another credit card with a zero balance and get a promotional 3.9% rate for a few months until the markets were better. To my surprise "none" of my other cards was offering a promotional rate. As someone who once played the promotional rate game this was a first! I pity those who tried to to borrow money elsewhere to pay a margin call. Psychologically I am affected not by direct impact, as I have not been forced to sell, but by the fact that so many of my back up plans aren't there anymore. I now am reluctant to buy on dips because I have only a little dry powder left and no easy way to get more in this market environment. Time to postpone purchase of unnecessary items find a seat on the sidelines and wait for a green light from the fed or the market. I think I'm doing exactly what Greenspan was hoping for: curtailing spending and trimming debt. For me at least, the wealth effect is on hold and I am doing my part to keep the volume in the markets down by doing nothing but waiting. The "fear" factor at work is less that the naz will drop below 3000 but rather that it will take a long time before it goes above 4000.
As an investor I lean toward fundamental analysis and away from Technical analysis. This current market condition may be the exception. There is nothing fundamentally wrong with the market, Valence, or as far as I can tell any of my other investments. The companies seem to be "on course" as does the economy. I have no fundamental worries of any consequence which is in contrast to all previous downturns.
Since Technical analysis is a graphical representation of the changing psychology of investors I will look here for the first sign of a turnaround. I hope Zev is as right about a June turnaround as he was about a horrendus May.
By the way the two gadflies of the thread are rather silent. Do you suppose the aren't paid to post about the economy and markets but only negativity about Valence?
Long Valence and tired of patiently sitting on the sidelines.
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