Relax! It's Only Window Dressing

By Jerry Slusiewicz | September 30, 2008 | 3:03 PM | 0 Comments

The markets today look more like window dressing to me than the start of a new bull market.  If I hadn't looked at a calendar to see that it is the end of the month and more importantly the end of the quarter, I may have been more impressed.  Unfortunately, I believe that today is a little relief rally that will likely fail until a definitive agreement is worked out regarding our current credit crisis.

Yesterday, while legislators have balked at the $700 billion price tag, the stock market wiped out around $1 trillion in shareholder value.  Of the top 100 largest decliners for both the NYSE and the NASDAQ, all 200 of them declined in price by 17% or more yesterday!  According to the Case Shiller report, US Home prices down on average 19% since the peak.  When business closes today on Wall Street it will mark the fourth consecutive down quarter in a row for the Dow and the S&P 500.  That hasn't happened since 1978 -79.

Coming into today, the S&P 500 is down 29.3% since last October, and is back to its level of October 2004, having given back its last four years of gains.  More importantly the S&P is nearly the same level it was exactly 10 years ago.  "Buy and Hold" and "Hold and Hope" takes on a whole new meaning when viewed in the big 10 year picture context.

Could anyone have seen this coming or predicted the possibility of yesterdays results.  Let's examine:

On August 28, 2008 I wrote here on greenfaucet: "One of the more gruelingly Septembers on record is that of 2002 when the Dow and the S&P 500 dropped 14% and 12% respectively.  I'm not saying that type of drop will happen, but it would be naïve not to understand that it could.  Investors are holding their collective breath, hoping that we don't have a repeat of September 2002.  I'm not so sure hoping is enough.  Cash is the safest place to be in this environment."

On September 10, 2008 I wrote: "The best current place to invest is in cash or individual government bonds.  This may be "The Bottom" for the stock market or we could see a quick decline to 1080 on the S&P 500 which equates to another 10 - 13% from here." (I was a little too conservative, because coming into today the S&P 500 was off 13.73%)

On September 20, 2008 I further added: "Thursday may have marked the bottom, if and this is a big if, the plan actually comes through to fruition.  If this RTC deal does not get done, the markets will face a calamity like none we have ever seen."  And they say market-timing doesn't work? Sure!

Today is the end of the month, and end of the quarter - its window dressing time.  Tomorrow starts a whole new ballgame.  Our representatives in Washington do not take seriously the current threat to our financial system.  We are in a financial tornado and the politicians want to go out and fly a kite.  As a free marketer, and sitting on all cash I actually hope they don't pass the bill.  However I believe the unintended consequences could be far reaching, beyond the scope of the sum of all fears.  Until this deal gets passed, I believe the downside risks still outweigh the upside potential in the market.