Thursday, March 13, 2008

Are you scared yet?

As I sit hear at 8 am on Thursday the market seems poised for 160-point drop on the opening. The dollar is down again and oil is approaching $110 a barrel. Before the markets open today they are already off between 8.5% for the Dow to down 15% for the NASDAQ year to date. The yield on the 10-year T-Bond is now at the lowest level since 2002.

Lower interest rates don’t seem to be helping—in fact there are two different bond markets going in opposite directions. The Government National Mortgage Association is a direct obligation the US Government just like Treasuries yet they are trading around 300 basis points over the yield of the 10-year T Bond.

I said that we need a capitulation with a sell off when people just throw in the towel and sell everything regardless of value that is when the “Fat Lady” sings. We have not yet seen that final blow off but I think we may be getting close. It is possible that the blow off will happen before the end of the quarter or in early April after statements come out, but I’m convinced that the end is near.

This time of decline and turmoil is the most difficult part of investing in stocks. We know we need some amount of stocks in our portfolio, but figuring out how much and when to sell or buy makes most people very uncomfortable. Investing is more fun when the markets go up. The real money is made getting into or out of the market a head of the trend.

The downside risk is not a great deal from this level in terms od percentage decline, perhaps less than 5%. When markets correct, like they have been doing so far this year is the time to look at what you own if you still like the prospect either add more or go do something else during the day.

It is very hard to control your emotions in both rising and falling markets. I think falling markets are the most difficult because your net worth declining and that is especially bad if your older, you have less time to make it back.

I have been told that the “Fat Lady” is on the way.

Dan Perkins

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