Wordon report tonight -
(interesting comments-refer to my previous post #31874 for his NOTE reference)
Popcorn
It seems fairly obvious that Alan is delighted with his handiwork. Having accomplished exactly what he set out to do, he's not going to reverse course now in deference to a mere presidential election. No longer does the charred smell of “irrational exuberance” pollute the atmosphere. In place of it is the putrid stench of fear and uncertainty. We personally think Alan has probably done what he was hired to do and done it pretty well. We hope he hasn't gone too far and suspect he has not. He never ducked walking a tightrope, which some may conclude is a sign of courage. We don't really understand that because we don't see what he has to lose. It would be hard to hold such a position without being dizzied somewhat by the enormous power there to wield. It must be heady stuff, and that's dangerous for the rest of us. He's no doubt an honest and sincere man who does his best with a great deal of expertise. But is it fair to him or to us to let him play God? Obviously not, but who has a better alternative? The reality is that this is the system. We have to live with it.
And so you have millions of investors, who never knew the market goes up and down, suddenly scared and confused. Many are completely befuddled to find their 401K's down twenty percent or more. Suddenly, their entire plans for the future seem threatened. And, of course, many of those who participate directly in the stock market find their sense of reality wavering. The world isn't what it seemed to be.
The truth is that what is going on is not cataclysmic. Since World War II, about every four years we've had a market turmoil at least as frightening as anything we've seen this year. The big difference is that those four-year waker-uppers stopped about 1990. We had cyclical bear bottoms in 62, 66, 70, 74, 78, 82, 87 and 90.. You've had to stretch to call anything since then a bear market. Especially starting in 1995, a market that had been rising since 1990 picked up the pace and we had several years of a stock market like nothing the world had ever seen. Old-timers have gotten spoiled and new comers have been led down the primrose path. Since the second quarter of 1999, the Dow has moved mainly sidewise. This has finally begun to weigh on people's nerves. We believe this is true despite no serious danger of a “grand bear market,” something that could last for ten years or more. And we see no catastrophic danger in terms of downside risk.
We are merely having an old-fashioned disciplinary shakeout. We don't know how long it will last, but looked at in terms of the decades we've personally watched the market, this is a mere intermission to visit the rest room and buy some popcorn. The discomfort that goes with it has always seemed to be a necessary part of the process. In a way, it's a shame. Discipline has to be forced upon investors. People like Alan, who ride into town on a black horse, are needed to keep order.
NOTE: Yesterday's reference to last year's highs in the Nasdaq was carelessly phrased. It actually referred to the high of last year's third quarter (around 2800), in effect the breakout point of the last rally of the Nasdaq bull market that peaked in March. |
