That’s what I call the small and mid-cap segment of my portfolio. BTW, “House of Pain” is a term most Cramer fans are familiar with. He did not invent it, but I think it is appropriate. I mean it has really gotten ugly out there, not to mention the return of volatility that some were bemoaning the loss of just a few short months ago. Truly this may be the “Big One”, that 10%+ correction many have been saying was ‘just around the corner’ for the past two years.
What a difference a day made
From up 275 p0ints on the Dow Jones Industrials Wednesday, on nuanced Fed Speak stating their decision process would include consideration of global economic conditions (Europe comes to mind). Fast forward to Thursday, and due to some additional disappointing numbers out of Germany, comments by ECB Chief Mario Draghi and Fed Vice Chair, Stanley Fisher, the Dow reverses field and drops 335 points (1.97%). The damage in the small and mid-cap Russell 2000 was more extensive, down 2.66% (down almost 12% from its March peak).
Why the fuss?
Seems to me it’s all about Europe and fear that recent signs of weakness over there will undo our recovery, even if the weight of the evidence is less than compelling. It is a good excuse to sell things.
One thing that puzzles me is why the U.S. has to pay more than Spain (2.31% vs. 2.06%) to borrow money for ten years and why does Italy enjoy the same rate for 10-year money that we pay. You would think if things had gone so awry over there they would have to pay more. Remember, these are two of the PIGS …Ireland and Greece complete the quartet.” These were the sickest of Europa’s sisters two years ago.
Here is how CNBC contributor, Art Cashin, summed-up today’s action. Not only did he cover Europe, but he threw in Ebola and ISIS for good measure. BTW, Art failed to mention more good news on the employment from earlier in the day, ignoring the fact that the initial Jobless claims rate came in for the 4th straight week under 300,000 (first time this has happened since 2006). The 287,000 number was 21% below the year-ago number.
“The only thing we have to fear is fear itself “
These words were spoken by our 32nd President, Franklin Delano Roosevelt, in his first inaugural address (1933) in the depths of the Great Depression. Those were really tough times. Before this, or future corrections end, the media will be working hard to convince you that these, too, are dire times. Roosevelt’s quote on fear is very applicable when investing in today’s media afflicted world. It is fear that makes us sell low and buy high. So, to finish this session, in a period of rising fear and agitation, I thought I would conclude with a bit more of this wonderful quote;
“….let me assert my firm belief the only thing we have to fear is fear itself –nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.”
ONE LAST ITEM: The stock market is the only place that I know of where the concept of ‘The Price Elasticity of Demand” seems to fall apart. Normally lower prices increase demand. However, in the stock market lower prices often create supply, while higher prices create demand. For whatever it is worth, no matter how many solid reasons one can present for higher or lower valuations, these anomalies can persist some time without resolution.
So, enjoy the House of Pain the best you can. It may be with us for a spell.
The information presented in kortsessions.com represents my own opinions and does not contain recommendations for any particular investment or securities. I may, from time to time, mention certain securities for illustrative purpose, names where I personally hold positions. These are not meant to be construed as recommendations to BUY or SELL. All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.