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Stewart:
I'm not predicting a bear anything either--predictions are for those psychic
1-800 people, not traders. But when I think about a possible bear market in
stocks, the first thing that comes to mind is the lack of experience in these
markets with bear markets and this is further complicated with the record level
of involvement by the public in the stock market. Not only is there a lack of
experience with bear markets but there are now millions and millions of
individuals [I believe individuals trading individual stocks make up nearly 47
percent of the volume these days--correct me on this if you have a better
statistic]. How do you think your Aunt Veronica is gonna react when she gets her
statement and her account is down 47 percent of value and she can't get Charlie
Schwabb on the phone to dump her stocks? And where I live [the north shore of
Chicago, you can see people upgrading their lifestyle because they've got a wild
ride on the bull markets of the past 16 years...I wonder how much of that equity
bulge in their purses have been cashed out--or worse, leveraged up with equity
loans and the like?
And second--the public is now conditioned by the few correctic 'crashes' we have
had in 1987 and the early 1990s. They have learned, like Pavlov and his dog, to
call their brokers the minute the news comes on and the guy starts talking about
the panic on Wall street. You can tell they are all calling their broker--Try
calling your stock broker when the DOW os down 200...or better, go to a Charlie
Scwabb place when the market is rocking and rolling [this is a must, just like
visiting the trading floors]. You won't find people panicking and trying to
liquidate their stocks. Instead, you see a line of folks waiting to buy more on
the dips!! And the same on the phones--these people are all conditioned to buy
on the dips! Now, so far, they have been right and right with a vengeance. So
who am I to throw stones? My only question is when a true bear market appears,
how many times will they try to buy the dip or crash before they finally
understand the rally isn't coming this week, this month, this....whatever. And
THEN what happens?
I'm terribly sorry if I made some people turn white and check their current
stock portfolios. These are just thoughts I have when thinking about a possible
downturn in stocks.
Tim Morge
Stewart Taylor wrote:
>
> A lot of the institutional traders and hedgers who have been heros (never
> confuse a bull market with brains) have never "been there done that." Walk
> around the bond floor at any dealer and you see a bunch of 20 year old MBAs
> who have been long for their entire careers.
>
> I have always dealt with hedging accounts... Those accounts who have been
> active risk managers have under preformed. Many of these managers have
> been replaced by managers who have thrown risk management to the wind and
> hung themselves and their accounts it out there. I wonder how prepared the
> market is for a real turndown in the financials?
> I wonder how many of the managers will have enough sense to throw in the
> towel and cut their losses before its to late? I also wonder how well the
> systems that have worked well for stocks and bonds in bull markets are
> going to preform when the worm does finally turn. Frankly, I (like Neil)
> love a good bear market.
>
> By the way, my comments aren't aimed at predicting a crash in either stocks
> or bonds.. but major corrections and reversals are a fact of trading.
>
> Good post Tim.
>
> COPIED:----------------------------------------------------------------------
> Neal:
>
> One thing that is interesting to ponder...and it makes me feel very old, bu
> the
> way...We have not seen a prolonged bear market in the US stock market in the
> 1980's and 1990's, and so very few traders are even trading that have
> experienced a prolonged stock market decline. I know as soon as they read
> this,
> some people are going to post that we have had several 'crashes' and they
> count.
> Maybe. Maybe not. I don't think so.
>
> The other argument I've heard is that the economic cycles have changed because
> of technological changes/improvements and so, the economy no longer 'needs'
> this
> sort of cleansing cycle...again, maybe, maybe not. I don't think so.
>
> Stewart Taylor
> Taylor Fixed Income Outlook
> Voice: 501-219-9774
> Fax: 501-228-0963
> E-Mail: staylor@xxxxxxx
> Web Site: http://www.cei.net/~staylor/
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