08/15/11 Laguna Beach, California – Mr. Market spoke last week….
Unfortunately, no one could understand a word he was saying. Like a back-alley drunk, Mr. Market was mumbling about so much of everything that he wasn’t saying anything at all.
Since July 26, Mr. Market has obliterated $6.8 trillion of global market capitalization. That’s fairly decisive. But last week, he seemed to be having second thoughts…and third thoughts.
“The swings in US equities [last] week were unprecedented in the history of the American stock market,” Bloomberg News reported. “The S&P plunged 6.7 percent on August 8, its biggest slump since December 2008, in the first trading session after the US was stripped of its AAA credit rating by S&P. The index rebounded 4.7 percent the next day as the Federal Reserve said it would leave its benchmark interest rate at a record low through at least through the middle of 2013. The gauge then fell 4.4 percent on August 10 and rebounded 4.6 percent on [August 11]. Never before has the index reversed moves that large each day over four sessions, [according to Birinyi Associates].”
For the moment, investors who snapped up stocks on the lows of last Tuesday or Wednesday are feeling like geniuses…and maybe they are. But tomorrow they may feel like morons.
Last week’s buying opportunity may not be as compelling as next week’s buying opportunity. In fact, we’d be surprised if US stocks did not make lower lows during the next few weeks. Big problems remain…and big solutions remain MIA.
The leaders of the European Union have next-to-no idea how to solve their enormous fiscal crisis. Likewise, the leaders of the US have next-to-no idea how to solve America’s life-threatening fiscal crisis. Pathetic is the word that comes to mind.
Not surprisingly, consumer sentiment is plummeting. The University of Michigan’s consumer sentiment index tumbled from 63.7 in July to 54.9 this month.
In the midst of the doom and gloom, however, opportunities emerge. Last week’s selloff certainly punished some stocks that did not deserve punishment. The selloff, in other words, created a buying opportunity for certain stocks. Volatile markets tend to throw the babies out with the bathwater.
Eric Fry
for The Daily Reckoning
Eric Fry
Eric J. Fry, Agora Financial’s Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling. Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research — institutional research products dedicated to international investment opportunities and short selling.
Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts. His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.
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