How do we really free the flow of money into banks and through banks, so that they take risk? When depositors are withdrawing everyday? Do the deposit guarantees really create risk taking and free up credit? Can we audit the cash reserves and move banks together consolidating an industry in risk, while keeping the government out of the risk? How do we stabilize banks to move out of a credit crunch? Considering that there are lots of unknowns and many more defaults to come, many more runs on the bank (estimated 110-120 bank failures this year, according to CNBC report), and many more movements and possibly movement back into stocks as they bottom out. This would extend the credit crunch and move the stock market back all in the same time. The intertwined markets create natural volatility even if we did not have the Treasury and Fed acting out to control the markets.
As mentioned in some past blogs, the credit market is the problem, not the stock market. Their is huge value in the market, oil is dropping as demand drops, gold is flopping as money moves in all directions not directly into gold (this should change) and look for retail, small business, restaurants, hotels, airlines, autos and oil companies to be the big losers. Fundamentally, it is the industries where discretionary monies go, although there could be some winners in each of these industries as companies react differently. With the abundance we have lived in during our Bull Market, we have created a ton of over-capacity. Winners will be the banks that survive, pharmaceuticals, the Walmart’s of consumer goods, alcohol, low-end cosmetics and generic providers of goods as demand for lower priced products will rise as income gets squeezed.
Now we need to look at consumer spending and unemployment figures to wade through the future instability of the markets. The opportunity is now, we are close to 50% off our highs, so our economy has lost 1/2 of the wealth and most of those monies are sitting on the sideline. Right now, is a great time to buy and hold. Define a duration that you are comfortable with and value cost average back into the market or dollar cost average as we begin to find the bottom. This will mitigate the risk of going back to the market.
Look for companies with cash, cash is KING. Get comfortable with volatility, it may trend lower, yet will still be a psychological affect for individual and professional investors alike. The bottom line, right now, if you have cash, you have lots of opportunities with all the movement. For every bear market finding the bottom, 30%+ has bounced back in the following 40 days. Other things to consider is hedge funds still trading downward and failing from capital extraction. There is also lots of uncertainty in the marketplace, so look for bouncing both ways to the bear and bull. Although, what are the fundamentals, the earnings and the future of each stock in the market. Is everything a bargain? The future will tell.