Ye of little faith
June 25, 2002
Man, oh, man. Now we find out what we suspected all along, Worldcom was cooking the books and in a MAJOR way. To the tune of $3.8 billion of false earnings (and who knows what's next). Can we ask for a refund from the millions the execs of that company have run away with from feeding us mist? And when even Martha Stewart can be implicated in a lurid tale of pillow-talking trading of insider info, you gotta ask: "what's next?" Mom and Apple Pie??!?! Yikes!
Perhaps you have asked, "what could be worse than a bubble?" Well, we are getting it, a bubble built on overblown earnings. The dubiousness of American accounting and real earnings can explain most of why this market, as low as it is, STILL is over-valued in general. After this is all over (when, oh wen, will it end?!?!), I am sure we will be horrified to find how much of America's storied performance during the 90s was built on smoke, mirrors, and gimmicks.
The biggest tragedy is that we currently have a Republican administration that still cares more about protecting its rich patrons than on exercising real change and reform. We have a government that is probably too distracted with fighting war with foreigners than the enemies within. As we still have a free market economy, we will not escape the consequences for long. All those foreign investors who are pulling out their billions every day from US assets of every class, size, and color are voting where it really counts. And it is not just our current government. Where in the world was the Clinton administration while the bubble simmered away? Man, how much better a set-up could Clinton have arranged to perhaps guarantee we never get another Republican president for the next 25 years! I am not sure *any* war could save Bush, Jr. at this point. (OK - an exaggeration, but this still ain't looking too good for our current partners in crime in Washington - I mean, really, what is Bush really DOING about any of this?!? All I have heard is a bunch of stammering of ill-conceived half-thoughts and virtual commitments).
Ah, so many questions, so few answers.
I do not know how I can get more bearish on the stock market at this point. It is clear that if the economy was not weakening before, the malaise in our markets are threatening future weakness in the economy. The gripping fear of risk-taking, the rampant distrust, and worst of all, the lack of vision, is slowly suffocating everything it touches.
Thus, I urge you - even if you don't have a penny invested in the stock market, even if you couldn't care less about the stock market, NOW is the time you need to pay attention to what is happening in our economy, our very society. If you have any investments, examine your portfolio and justify to yourself why you are still holding onto it. If you are exercising "faith" and "hope" in future returns, sell this investment at your next best opportunity. If you are trying to hang on, but feel like you do not understand the way the economy works, don't understand the way the stock market works, even if you don't understand the way American politics works or you are not able to keep up with global events, at this point, you should also seriously consider liquidating. At the very minimum you should allow a trusted professional (are any left?) to handle your funds.
I understand the gravity of my words. All this time, in all these missives, I have tried to avoid recommending to people to outright sell anything. But the blinders are being brutally removed from the charade of the bull market we had, and the emperor not only has no clothes, but has been gorging on fat, grease, and gristle! My main regret now is that I didn't say SELL, SELL, SELL back in early 2001!!!!
I also realize that at any moment the market can zip ahead on another bear market rally. Such an event is a time for conservative investors to sell or for traders to profit. That's it. If you want a rule for getting back in, how about let the market prove itself with a non-negative year? Maybe even 5% gain? I used to say this for only conservative investors, but now EVERYONE should be worried about conserving.
I even realize that maybe, just maybe, a bottom is finally forming. But what will be left for the intrepid amongst us to buy? The remaining hulls whose mysteries, risks, and trap doors are not yet uncovered? No thank you! (OK - I am getting a bit melodramatic, but you probably understand my point).
And if you are STILL looking to invest new cash, only buy stuff you truly, deeply understand (or are prepared to hedge) and that you can get for a price you can convince anyone, even Warren Buffet, is "cheap, cheap, cheap!" And even then brace yourself for a rocky ride.
Finally, always recognize that even in the worst of times, opportunity exists. But those real opportunities are not easy to find right now. You will have to work very hard to both realize them and profit from them. And believe me, I feel your sweat and pain!
As always, be careful out there!