Top 10 Reasons the Market is Down
The Dow plunged almost 700 points today, and is down 17% just this week and 24% over the last 30 days. The drop is not just the result of the financial crisis that plaques the market today. Additional reasons are:
- A weakening world economy.
- A deeper recession than the government had formerly suggested.
- Bernanke spreading more pessimism with his words. Everytime he speaks, the markets go down triple digits.
- Loss of 159,000 jobs in September and a number that might even surpass that in October.
- Consumers not having money to pay their mortgages and other unsecured debt like credit cards, which in turn means they lose their power to spend and their lenders, along with retailers and other businesses suffer.
- Lack of consumer confidence (no surprise there).
- Stronger Dollar (which will hurt our exports).
- Weaker commodities (which although good for the consumer, is bad for stocks).
- Uncertainty around Elections (although I don’t think either candidate will have a direct long-term impact on the market).
- The bail-out plan, which ultimately might not bail out anyone.
This market is different than the one immediately after the Nasdaq crash. The latter was the result of tech stocks being overbought and having lofty valuations. This crash is the result of the unscrupulous mismanagement of risk and finances on the part of:
- Lenders/Creditors – both mortgage and credit.
- Borrowers – who took whatever they could get from their homes and credit cards and spent it all.
- Government – for keeping rates so low for such a long time and not regulating the mortgage industry sooner.
Having said that, stocks in most of the sectors were not at ridiculous multiples as they were back in 1999. Yet the markets continue to hurtle down. Catching a knife, picking a bottom, train wreck, taking a beating – these phrases come to mind as $$$ keep disappearing from your portfolios as if by magic.
Amidst this chaos, just know that the market is closer to a bottom. That there is a point at which sellers will turn into buyers. I believe we are one big down day away from this bottom. Put your buy orders for the stocks you like at 10% below their existing prices. I believe that is all the downside we have left.
– Faisal Laljee
Full Disclosure: I am net long this market.