The Third Quarter Ends On Another Down Note
Jim Puplava: Market WrapUp, Monday, Sept 30, 2002
The Dow Jones Industrials ended the month of Sept on another down note. For the venerable Dow it is the sixth month in a row it has finished in negative territory.
Stock markets have been falling for three straight years and people still aren’t worried. You would think with almost $8 trillion in stock market value wiped out over these last three years people would be concerned, but they aren’t, or if they are they still haven’t shown it.
I believe most people are waiting for the bottom. That is what the financial media and Wall Street have been telling them for over three years. The reason they haven’t been concerned, in my opinion, is that the price of their homes has been going up. The loss in stocks has been partially offset by the rise in housing values, so they figure they’ll just stick it out. Wait for stock prices to bottom and then cash out when prices rebound. The bubble in housing has helped to ease some of the pain in the stock market so most investors have remained complacent.
This recession and bear market has been unusual compared to times past. Instead of leading the economy into decline, housing has remained strong throughout the business downturn. This recession has been mainly a business-led recession and the consumer has acted remarkably different. Instead of cutting back on spending, building up savings and paring down debt, the consumer has done just the opposite by reacting to lower interest rates by raiding the equity of their homes to go on a borrowing and spending spree. Savings have been depleted and debt has expanded to record levels.
It is not just the spending habits that have changed in this recession and bear market, but it is also the investment habits that are also different. Instead of bailing out of stocks after two negative years, investors have held on. I can’t remember anything like this in my 23 years in the business. I met with a couple today that had a million dollar investment portfolio over four years ago. They are now down to around $250,000 if the equity of their rental is included. They went from tech and Internet stocks to junk bonds. They are now ready to say uncle.
It is sad to see is how complacency has destroyed so many portfolios and retirement dreams. Even sadder is to think the worst is not over. This bear market will unfold in stages until stocks once again return to bargain values. It is going to take more downward bouts of selling before this bear market ends. When it does, stocks will be at bargain levels again, but nobody will want to own them. |
