Fear of Being the Last Seller
March 22, 2004
The market's "liquidate America" program continued today near unabated. Global markets are selling off pretty vigorously right now as well. Taiwan was particularly hard hit over election concerns not unlike America 2000 - with an alleged staged assassination to boot. And yet, the rosy-eyed optimists still want to call this a "normal correction." The only thing normal about this sell-off is that plenty of people are still clinging to glories past. No one wants to be the last seller when the assumption is that this is a "normal correction" that will only lead to even better times ahead. Without a mad rush all at once for the exits, we trim the fat off slice by ever-so-thin slice. Slow enough to make the bulls think a good bounce is right around the corner and slow enough to make the bears fear that same bounce. So a drip-drip-drip we go.
I always enjoy hearing the prognosticators and analysts go on about how we need to shake out the weak hands to achieve an end to a correction. While this is true, taken to its logical conclusion it means that NO ONE should sell because to do so will put you at risk at being the very weak hand that needs a shaking or two! The more people that believe this weak hands theory, the more stubborn the hands become and the lower the market goes. Judging from what I am seeing (heck - what I am doing too!) folks more fear being the last seller than they fear the risk of further losses. The losses still seem measurable and contained while the future gains still seem within reach and without end.
The other classic circumstance in this sell-off is that it follows a vigorous January rally. The bear market was full of the mad rush of new money in Dec/Jan only to have that new cash go up in smoke before anyone could yell "SELL!" Practically the same thing happened again this year. If it were not so painful, it would be comical. "Everyone" knows that pension funds and big institutions and even individuals fat with bonus Christmas money or whatever are pouring cash into the market as the New Year begins. Often times this money is pulled out the market late in the previous year for tax loss purposes. Everyone else just waits for this moment like a hunter waits for his prey to saunter right into his gunsights. Or maybe it is like shooting fish in a barrel. Pick your metaphor - but the latecomers have been done in yet again. The market can be a cruel master indeed.
Word swirling in the street now is that geopolitical concerns are weighing in on the market. I still offer you the opinion that geopolitical concerns are merely the latest excuse for selling. Eventually, the market will "price in" the new risks and will proceed to act as if nothing happened (the notion that the market can accurately and price in anything, not to mention sustain such rationality, is another one of those conventional truisms I marvel at). The market will eventually ignore geopolitical instabilities once again. The devil is in the details and knowing (really guessing) when that magical moment will happen. The very real danger we face now is that by the time the market starts looking forward with hope rather than backward with fear, the future will offer up a much bleaker economic scenario than the conventional wisdom holds right now. Bush was banking on the stock market keeping its rally legs running on high-octane government stimulus. His worst fear is being realized now that the fuel is being burned up chasing down conflagrations peppered willy-nilly across the globe. Heck, the market is even telling him that it is losing more and more confidence in his leadership with each passing day. At what price will the market finally rest satiated at the prospect of a John Kerry in the White House? Again, hard to say. But you can imagine "capital" is NOT happy with a presidential candidate who calls its corporate promoters and sponsors "Benedict Arnolds" for pursuing low costs and fat profits wherever they can be found across the globe. In fact, if Kerry does not speak up soon to defend capitalism and at least give some kind of deference to capital, we can bet that the "Kerry-discount" will become deeper than we can even dare to guess right now.
Do not be the last seller, but please, oh please, do not be the person without a seat when the music stops.
Be careful out there!