Friends,
Today was another massive selloff. What was shocking was how quickly the Dow dropped to below 8,000 and the S&P 500 to near 800. Normally, this downturn should take a few years but this has all happened this year. Plus, it looks like the market has lost faith in the “big 3″ (or should I say “fundamentally flawed 3″) auto companies receiving a loan/bailout from the US government. Investors today flocked to low yielding bonds and are leaving stocks by the boatload. If this is the correct move to make, then we must be heading to another “Great Depression.” I actually don’t think that will occur.
So, what will happen from here? Could we have another selloff? Sure. But, I feel that we will have another bear market rally soon enough. That’s why I bought some shares of UYG because the financial sector will be the quickest to participate in any rally. You should also look at other index ETFs. Don’t go overboard but look to buy a few shares and then sell them into a rally. Also, this would be a good time to buy some additional shares of the world dominating blue chips that I had wrote about in an earlier post (WMT, MCD, XOM, JNJ, JPZ, etc.). The current environment is becoming ideal for establishing long term plays for very short term intraday trading.
For the near term, we will continue to see volatility in the markets because there is still some more blood to be shed. For example, commercial real estate is no where near a bottom. The REITs are still in process of liquidating asset holdings. We will continue to see these firms declare bankruptcy because there is absolutely no way that the government will bail them out. I will go as far to say that we may be witnessing the demise of the REIT model because of the high leverage and large capital distribution components that have made this model work up until now. Without the high leverage, they are unable to provide the large distributions. If they are unable to provide large dividends, then they do not receive the favorable tax treatment that they get by being structured as a REIT.
I find the Congress hearings of the auto manufacturing CEOs to be absolute comedy. It’s actually a form of entertainment. Give me a break! Are you telling me they feel the US economy will crumble if they go into bankruptcy? Honestly, I think they will do us a favor because that will be the only situation where they can relieve themselves of their creditors, legacy costs, and union headaches. They are worried that no one will want to buy vehicles from a company in bankruptcy. The last I remember, they weren’t selling and Toyota was eating Detroit’s lunch.
As I have no new articles for you today, I want to leave you with a quote that I came across early this morning: “Never forget the six-foot-tall man who drowned crossing the stream that was five feet deep, on average. It is not sufficient to get through on average. You have to get through every day.” It is so true and that is what I am looking to accomplish for all of you. I only seek to be top notch, provide clarity in all of the garble that we read and hear in the media, and show how we can profit in today’s environment. If you have any suggestions on how I could do better, please e-mail me at moolahtimeletter@gmail.com.
-Moolah
