After listening to investment analysts, talking to and reading everything from the New York Times to the back of my Rice Krispies box let me share what I think happened this past week.
Ever since January poked its head in the door financial experts have been beating the drums that the markets have been ahead of themselves and need to pullback. The December 31st 2009 Barrons suggests that 2010 could be the beginning of a shift from equities to junk and Treasury bonds. Businessweek suggested an 11% selloff for the new year. So why are you surprised?
Two-thirds of all trades are computerized. Along with the Greek-fear in the air someone somewhere did something to cause a massive block of stock to be sold. Proctor and Gamble fell 35% while other sell orders flooded the NYSE with no buyers on the other side. Half of the computer trades are done as intermarket sweep orders which is a computer program designed to find which exchange offers the best price. When the NYSE halted for 90 seconds trading so everyone could catch their breath the trades simply rerouted to other exchanges. Accenture, PLC fell to a penny in that route. The machines need to be reigned in. The first time I saw this was in 1987 and circuit breakers were installed after that mess. This past week markets fell more than the entire 1987 Dow. We need a fix here.
This is a confidence issue. Global markets and partners make for a small world. In the old days Greece falling by itself was not a bad thing except for Greece. However it is now part of the EU and as a partner is a key member that deserves support. Greece cannot simply devalue currency. It is a euro nation. It is making its frugal neighbors angry as they must support their spendthrift fellow member. And, unfortunately that neighbor has identical siblings in Italy, Spain, Portugal and Ireland that have had similar spending patterns and may soon step into line to be supported by their richer relatives. (And the richer cousins don’t even like these people very much!)
Even with the computer trading mistake investment professionals are sending a strong message to governments and politicians that they have to clean up their acts and become responsible. This is especially true of our local and national representatives. Back home they still don’t get it.
Good news was ignored by investors as employment strengthened all across the board. More jobs in more sectors were created and fundamentally we are in better shape financially then many other countries although our debt to projected 2010 GDP is still a stunning, unbelievable 92.6%. Traders are telling us to look in the mirror because our day will come if we do not start to clean up our own economic spending mess.
It’s also about the euro and the dollar. If you invested in a foreign fund that bought foreign assets in euros and the euro sank no matter how well the investment did coming back the investor lost money unless the fund hedged the currency in other trades, which most mutual funds do not do. In World or foreign funds some of the money is invested in euro nation companies and while the investment may do well the euro could determine how long before we are able to enjoy the upside of a particular investment.
So there it is. Not very pretty but lots of clues and some explanation of what happened last week to cause a massive slide and losses all across the board. A few clients and I did take advantage of what I think is an opportunity to buy certain stocks and will continue to do so.
Remember you could own the best, most productive investment and if investors dump shares to get to cash and there are more of them then there are of you then your investment will go down. It doesn’t matter how strong the fundamentals it then comes down to supply and demand.
If you have questions for Paul call 877 783 7080 or write him at pstanley@westminsterfinancial.com share this blog with someone who cares about their money.
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