What has happened so far? Out of the blue "anti-shareholder" bailout plans, then a few government induced market shocks, then a broken promise from the Republicans (complete with two internal party revolts), then finally some kind of legislation is passed in the US.
And just when we think OK, let's start to rebuild, the Dow falls below the 10,000 point mark erasing more than US$2 trillion in value. All the indices fall.
So the analysts start pumping out the "reasons". They say:
- An eventful weekend - European banks were in trouble. (Never mind that European leaders came out with strong statements of support.)
- People saw their money market fund statements and decided they wanted back their money. (Never mind the US Government said long ago that principals are guaranteed)
- Fears that the economic problems are global (Never mind people have been saying this for a very long time, much before these recent problems in the US markets)
Which leads me to my next analogy. Other than sports and music, I love talking about nature and the environment. So let me describe a new category of investors called "Lions". Lions are neither bulls nor bears; they are.....well, lions.
1) Lions are cats.
Everyone knows what the expression "herding cats" means. It means that it is next to impossible to get them all together. Cats are highly individual and not minded to move in the same direction. Due to events in the last few weeks, the degree of mistrust and lack of confidence has just heightened that individuality.
2) We are in some kind of "Jungle".
What is the "jungle"?
- The external factors have been so unpredictable that the environment encouraged typical "lion" behavior - defense of the pride and hunt for the family and the young - in other words minimizing losses, and for those with the stomach for it, maximizing gains. For many, survival has been the name of the game. For others, recouping massive losses. And for others, opportunities as they arise.
- International governments have made attempts at stability but are challenged by typical "lion" behavior - these investors are nomadic (operating internationally and cross border) and domestic (local and operating nationally).
- Don't hold out hope for the "normal" predictability. Lions set their own timetables. They can be inactive for up to 20 hours, and then act selectively. Day after day we hear about "buyers" strikes. Meaning they are those who wish to sell stocks and cannot find buyers to buy them.
- Psychology and sentiment are trumping fundamentals, and - like true cats - none of these "lions" feel the same way. And to make this a real jungle - how do we know what the real fundamentals are when the availability of credit, the cost of credit, and the rules of accounting have all been so "fundamentally" changed?
In this "jungle" that has been created, the lions are likely to remain kings of that "jungle". BUT, there is no sustainable system with only lions - they may dominate, but they do not exist in isolation. And the entire world is not a "jungle" so if it's not for you (i.e. if it does not fit with your risk profile and appetite for risk), there's no law that says you have to go on safari anywhere.