Ian Woodward's Investing Blog

I had planned to use this slide as my opening remarks for the Seminar in 2&1/2 week’s time, but after two days of utter chaos in the stock market, I felt a bit of levity would be in order rather than my writing a screed of where we stand.  Who knows…I may still use it?!

To at least give you an idea of the market’s reaction to the European debacle today after their Markets followed suit since our decline after the Bailout Bill was passed, here is what transpired on the DOW:

In a sentence, it is called “Pick up the Pieces!”

Enjoy!  Best regards, Ian.

The much anticipated passing of the “Bailout Bill” came and went with what one would expect…buy the rumor and sell the news.

Here is what transpired on the DOW prior to and after passing the Bill:

If you are a History Buff, on the eight other occasions that the DOW dropped >7% in one day the overwhelming odds from seven of the eight readings is that the Market will be lower one week later.  That means that we should be below the 10365.45 of Last Monday the 29^th of September come Monday’s close.

In a Bear Market, the rule at this stage of the game is to sell any rallies of 4 to 6%.  It is going to take a long while before confidence is restored and it goes without saying that the trend continues down.  Rumor has it that Helicopter Ben is considering a 50 basis point reduction in the rates, but the bigger questions now relate to whether the European Banks will join in a global joint reduction and if they are faced with similar bail out circumstances.  The proverbial Operatic Fat Lady is singing…now is not the time to be dredging leave alone bottom fishing.  Note how the “R” word is now freely bandied about, and who knows when they will turn to using the “D” for Depression word.  The Hindenburg Omen signals way back last November gave you plenty of warning.

There is little more to say than stay in your foxhole unless you are a Moment Trader…even Day Traders get taken to the cleaners in this highly volatile market.

Best Regards, Ian.

As angry as Main Street are they will be a lot angrier if Congress does not act.  It didn’t take long before the finger pointing started after the Bill failed to pass.  The sadness is there will now be spillover to every American, rich or poor, which has already suffered from the experience of the crash of 1987 or the dot.com bubble bursting from 2000 to 2002.  Their hard earned 401K’s have shrunk overnight and it will be years before they recoup that portion of their nest egg which took hard work over years of faithful due diligence to their companies and their families.  Some may be unfortunate to find they have to postpone their intended retirement or go back to work as a result of this debacle.

It is little consolation to say “Been there, done that” when I think back to that fateful day in 1987.  By the looks of things this could be worse, as tomorrow is the last day of the month and of the quarter, and Congress cannot do anything until Thursday.

I have no words of wisdom that I haven’t covered, especially these last few weeks.  In times like these “Cash is King”, but make sure that your money is FDIC Insured in the Bank and that if you have >$100K in the account that it is registered with the Bank as a Trust and that you and your dependents add up to the multiple of $100K that is in the account.  For example, suppose you have $320K in the bank just to pick a number, and you and your wife have named two dependents in the trust; that provides $400K worth of coverage for you, so you are covered.  You should talk to your Bank Manager to make sure your money is safe.

Best regards, Ian.

3 Responses to “Wall Street Reacts to a Day in the Life of Congress!”

• 1. Hal P. Says:
  September 26th, 2008 at 9:01 am

LOL That was very interesting. It’s amazing to me really that the market is so emotional. But it is what it is.

• 2. Stock Research Says:
  September 27th, 2008 at 8:14 am

Ian, I don’t disagree with your assessment that things will get worse before they get better, but I think that, all things considered, it is good that the market has not over-reacted to the ongoing bad news and uncertainty. I think most of us agree that a measure of debate is good, rather than writing a $700B check with no questions asked.

• 3. ian Says:
  September 27th, 2008 at 10:06 am

Hi Steve: I couldn’t agree with you more. I suppose what triggered your comment is my last sentence on “pussy-footing” as my concern at the time was for an over-reaction by the markets ala 1929 and 1987, which fortunately for us all has not occurred so far. I certainly didn’t mean to imply that they write a blank check, and I am glad to see the subsequent urgency on all fronts to bring closure to a joint solution. I also agree a measure of debate is healthy, and as things have since unfolded there has been sufficient due diligence to buoy the market up from precipitous consequences. If “floodgate” action is avoided we will all be happy until the next time. My emphasis was on the “degree of a sense of urgency”, nothing else.

I have made it a principle of mine not to bring politics into the discussion on this blog, but as I have always maintained, one important aspect of Investing is to understand the reaction of the Stock Market to the action or inaction that the FOMC takes. If you take the time to look at past blog notes of mine, you will see that is the emphasis I apply. That is why I take the time on occasions like this to share five hours of my efforts just catching that reaction, leave alone the additional time to write the blog.

My question of you and the audience is “Was this particular blog note of value to understanding the reaction of the market to important FOMC, Administration and Congressional discussions in helping you be a better student of Investing?”

Best regards, Ian.

Today’s discussion by the Three Musketeers, Secy. Paulson, Fed Chairman Bernanke and SEC Secy. Cox at Capitol Hill was a battle between Wall Street vs Main Street.  It goes without saying that the senators questioning and of course posturing was to make sure that the Tax-Payers’ concerns were being heard, since we will ultimately be footing the bill.  However it was abundantly clear to me that what was originally expected to be a quick passage of the $700 Billion Bill was not likely and as you will see so did Wall Street by the end of the day.  The DOW and Nasdaq closed down another whopping 162 and 26 points, respectively, and so we drift along teetering on the brink of disaster.  Net-net, while Rome burns, Congressmen Fiddle!

I captured the highlights of the action on a timeline relating to the ebb and flow of the DOW during the course of the hearings, and here are the various snippets from the Administration, Congress and the CNBC commentators in the first two hours in the morning:

…And here are the next 2&1/2 hours:

Here is a picture of the internals of the market which showed how these indicators reacted during the five hours I kept an eye on this.

The only saving grace is that volume was low which signaled a wait and see attitude by Wall Street.

I submit that another day or two of this pussy-footing will see us on the road to the floodgates all opening to the downside as I forecasted yesterday.  Hang on to your hats for a bumpy ride.

Best Regards, Ian.

Editor’s Note!  Please read important discussion in the Comments section of this note to understand the context in which it was written.