Turbulence . . . Exuberance . . . . . Performance???

The last month or so in the financial markets has been one of the most turbulent in recent memory.  If anyone wanting to see what a roller coaster looked like, check out any average chart which looks like a silhouette of a really neat roller coaster; lots of ups and downs.  

However, if this chart represents your investments, this can make your head hurt and your heart sink!  In investment planning we always talk about diversification (don't put all your eggs in one basket).  This didn't really help much this time!  Just about everything has been hammered lower during this period, and like yesterday, we have had some rallies, nothing that has sustained long term.  Personally, I think we are at the bottom and although we will struggle to move much in either direction until next year (2009), I feel we generally move down 50%  on the S&P between the end of one bull/bear to another (that would be around 819 on the current S&P), and we are right about there (or have been close).  No category has been totally spared: large-cap, large-value, mid-cap, small-cap, micro-cap, international, sectors (can you believe with the gas prices that Energy is down over 30%!), foreign markets, bonds (ST and LT), and even some money funds took a hit (though now the government is going to guarantee those funds).

If you have the stomach for it, this is a great time to buy!  Wall Street is having a sale!!!  Many stocks are 30-50% off.  So, if you liked a company 90 days ago, you should love it now assuming the fundamentals are still reasonably strong.   The safe havens have been government paper, corporate paper, CDs, and money funds ---- none of which are paying a great return (however compared to stocks, they are pretty nice!).  There are some interesting investment choices out there when you consider the low price of the stock and the dividends it pays (you need to check to see that the dividend is secure!).  Companies like Pfizer (PFE) is trading near $17 and is yielding over 7%; General Electric (GE) is trading under $20 and is yielding over 6%; AT&T is trading around $27 and yielding a little less than 6%, and Merck (MRK) is trading around $29 and is yielding over 5%.  Now, this is saying anything specific as you still have to do your due diligence and determine for your self whether these companies will continue to exist in the 21st century.  However, if you determine there are some good quality companies out there, if you can get 5-7% dividends, you can afford to wait for a year or two before the stock comes back.  Where else are you going to make that type of return???

Where we are now - October 8, 2008

Well . . . . . is it safe to come out from under the covers? Maybe not yet. It depends on what type of investor are you, if you are a contrarian (i.e. bottom feeder) this could be the time for you to shine. While most people are wringing their hands and watching increased worry lines appear on their faces, those who are savvy and willing to stomach some risk, now is a time to be getting cash ready to go back in. The bottom is near! Actually, at the current daily meltdown, the Dow will be at zero in only 19 more trading days! Is that something great to think about! Seriously, I would looking at things important to our standard of living. Industries like infrastructure, natural resources, energy and food. Areas to stay away from are the autos, like you needed me to tell you this! GM hit a low today that it had not seen since 1952 when it traded at $6.42. Ford hit a low not seen since 1985 at $2.77.

With all this turmoil in the markets, you wonder who is buying. Well, Bank of America has just sold a bunch of its stock in the markets to raise $10 billion in a effort to help with the Merrill Lynch takeover.

The FED cut the federal funds as well as the discount rate by a half a point to 1.50%. Central banks in Canada, Seden, UK, Switzerland and the European Union have also lowers rates, even though some were worried about inflationary pressures.

Finally, what would a day be like if we didn't talk about oil prices. Today, oil hit $86.05 a barrel. Some members of OPEC (Nigeria, Iraq, Iran & Libya) have been making statements to the press that OPEC may have to adjust the supply in order to help the current markets. Their statement effectively said they feel $90 a barrel is fair value and any sustained level below that will cause them to cut supply. Saudi Arabia has not said anything on the matter. Saudi Arabia is the biggest U.S. ally in the region.

Bailout passed by Senate

The $700, now $805 billion bailout passed the U.S. Senate last night. Now we have to wait and see what will happen with the House. Over the last few days there has been many articles written about what $700 or $805 billion would buy if it was spent on the people of the U.S. rather than the financial institutions that caused the mess. I agree something has to be done, as the credit freeze is affecting those with good credit, who would and are qualifiying for a loan (the types of loans the financial institutions should have made over the last few years), and the is no money to loan.

What this economy needs right now is no different than what a business needs, CASH FLOW. Consumers have nothing to spend and can't even borrow if they wanted to spend.

The markets are in their usually roller coaster ride they can do when uncertainty reigns supreme!

Some interesting items in the financial press, from yesterday (Wednesday, October 1st), is that General Electric is offering to offer shares of stock to sell in an effort to raise $12 billion to give it a chance for acquisitions - clearly it thinks there could be some valuable companies "on sale" when this all shakes out. GE stock is off more than 34%, more than the market (off about 21%). Interesting report has Warren Buffett interesting in buying into GE!