It hasn't sunk in yet, and maybe it never will.

It's not that often that we revisit previous posts but here is one that I wrote on October 23, 2008. It seems to me that seven months later not a lot has changed. I still think that we are  going to see some difficult times ahead. But not all is doom and gloom, there are always opportunities to make money in the market.

Anyway I thought you would find this post interesting and hopefully educational.

It hasn't sunk in yet, and maybe it never will.

For most people who've lost 30% or 40% of their IRAs or 401(k) plans, it just looks that way on paper. In other words, it hasn't sunk in yet. The reality is that when this sinks in, and it will, the realization will have a significant negative impact on the psyche of the US consumer and the US economy.

This is the first real bear market we have seen in a generation and maybe the start of the greatest bear market we have seen since the Great Depression. All of these distressed securities have to be worked out and priced accordingly in the marketplace and that is going to take time. Right now, there is no reason to jump in and buy stocks because they look cheap.

The technical and fundamental trends are clearly down in all the equity markets as the de-leveraging of the hedge funds continues. You may remember I made a post some time ago about hedge funds. I said that in the end "they will devour their young." That's exactly what's happening right now.

This is without a doubt an extremely challenging time for both the US and world economy. There are no easy answers. China's economy was built on manufacturing and selling products primarily to the United States, but also the rest of the world. The global slowdown will dramatically impact their economy.

The fact that crude oil has crashed and lost almost half its value in a very short time has helped the consumers shake the real fear that rests in their subconscious psyche. Will lower gas prices jump-start the economy if consumers see more disposable income in their pockets? Even if lower gas prices come to fruition, will consumers commit to spending the extra money?

The greatest fear right now has to be fear itself. I discussed this in one of my previous posts and I believe it hasn't yet sunk in to the general public just how bad the economy is.

If we see the recent lows in the equity markets taken out, we could see another huge capitulation to new lows. If that occurs, both professional and amateur investors alike will be scrambling for the exits at the same time.

So what's an investor to do? I have blogged in previous posts that these are not markets you can buy and hold forever. Unfortunately those days are long gone. The classic fall-back line for all stockbrokers is, "if it doesn't go your way, it will work itself out in the long-term." Did General Motors (NYSE_GM) work itself out over the long-term? NO. Has GE (NYSE_GE) worked itself out over the long term? NO. This can be said for thousands of other stocks that have not gone up "in the long-term." So remember when your broker tells you to, "hold it for the long-term...it'll come back," you might want to cut your losses early.

The key thing to trading and investing is knowing what the markets are doing at all times. Right now the market remains negative. Why would anyone go into defensive stocks just to be in the market? If the trend is down in a so-called defensive stock, why would you want to hold on to that stock? It just doesn't make much sense in my book.

I believe we are going into a prolonged, protracted time when stocks don't do much of anything. People are fearful right now. Over the years we've lived the good life here in the United States. Credit was easy, people thought the money carousel would go on forever. Well, guess what? The world has been playing musical chairs and when the music stopped (read that as the credit) there are no chairs to sit on. We are left standing, not sure what to do next.

I am normally an very optimistic person, but at the moment, I feel an economic chill settling over the world for quite some time.

Having said all of this, the perception of the marketplace can change at anytime. When that does, you need to change with it. You can no longer be passive in these types of markets. The individuals who do remain passive and hold for the "long-term" are now way behind the eight ball. Unfortunately, many may never recover.

Mark my words, there will be some fantastic opportunities in the weeks, months and years ahead. But, those opportunities will only go to the well-prepared, disciplined individuals traders who believe in what they're doing in the market. That's the only way successful investors will succeed in my humble opinion.

Best,

Adam Hewison
President, INO.com
Co-creator, MarketClub

20 thoughts on “It hasn't sunk in yet, and maybe it never will.

  1. Words of wisdom from someone who has been there before. By the way, I use this service every day and has helped simplify my trading immensely. Enjoy the videos too.

  2. Thanks for reprinting this. It's great to see that there were other folks saying the same thing that I was thinking last fall. Appreciate your candor. I agree that there are many counter intuitive things happening now, i.e. the market continues to rise in response to ongoing very negative news. The end of the crash cycle does *not* seem to be close, and we have yet to see how bankruptcy in GM and California will really affect the markets. Muni Bond markets are still up for grabs as of the day I write this. While I will gladly profit (and have) from the current rally, bear market or otherwise, I am extremely focused on the technical indicators. Thanks for your site's very clear perspective.

  3. This is the type of sentiment from which great bull markets develop. It is the great wall of worry which is climbed.

  4. Ludwig Von Mises said it all in 1949 in one small paragraph..
    "There is NO avoiding the crisis that is the result of a boom caused by credit expansion. It is only whether we choose to suffer the crisis sooner by avoiding further credit expansion, or suffer the final catastrophe that usually destroys the currency system involved."
    The American people are doing the right thing, they are de-leveraging and saving, the banks are also by tightening credit and qualifying lenders better. Only our government continues to borrow & spend like a drunken sailor. Only the Federal government has the power to do it on such a grand scale and in the process, seal our doom.

  5. Words of wisdom from someone who has been there before. By the way, I use this service every day and has helped simplify my trading immensely. Enjoy the videos too.

  6. Americans will always do the right thing,
    After they have exhausted all the alternatives

    Cheers ~The judgmental Therapist~
    ...A proud tradition not only to respect the views and faiths of others but fought in numerous wars to protect the right of free speech for all...~
    your comments will be taken seriously

  7. Adam,

    You are absolutely right. But this fake rally is not letting up. The right thing to do, in my mind is hold what you got DO NOT BUY ANYTHING, NO MATTER HOW ENTICING (adjusting your stops each day as the rally continues)

    If you get an exceptional spike on a stock, SELL IT! Keep your cash reserves ready for the day reality DOES set in, and buy something like FAZ and make a killing

    The key lesson is this...

    DO NOT FIGHT THE TREND,

    UNDERSTAND THE TRUE VALUATION OF YOUR PORTFOLIO

    SET TIGHTS STOPS REGULARY

    DO NOT BUY ANYTHING

    SLOWLY GOW YOUR CASH RESERVES

    AND HAVE AN ENTRY PLAN FOR THE DAY THE SHTF. LIKE FAZ

    God bless you all

  8. Hi Adam I relish your bad news along with your many good news chart analyses. Your site has fantastic data and methods. Today in Toronto's Globe and Mail newspaper there was a note saying Sun Life Canada's largest life insurer has begun switching investment focus onto hard assets since paper promises can no longer be trusted. We should all do the same.... cheers Donato

  9. Congratulations for your timely and truthful comments.

    Enjoyed every line.

    This actual stock market top has been zigzagging too much, but the charts I read (Thanks to a course I learned from you.......-downloaded from your site) are screaming and shouting:

    Fasten your seat belts!!!!!!!!!!!!!!

    The REAL nose dive is about to begin anytime soon

    Chaim Kimelblat aka (email removed)
    Listen with your Brain

  10. The coming "blowup" in the commercial real estate markets will cause further pain in the banking sector....that pain will then be felt soon thereafter in the rest of the markets....continued layoffs will further reduce consumer spending...take a look at all the dealership close downs your going to see of the next 6 months from GM and Crysler...how will that effect the local markets where they are located? My bet is it will hurt...including all the other companies and services that surround those dealers....I think more is to come so this recent bull rally is just that, a short term rally and I am personally keeping my position sizes a little bit smaller and my stops much tighter...am I playing this short term up move; -yes, but with much more caution than what I see on the CNBC talking heads.....

  11. Thanks for the reflective article and all the other info provided over the last few months. Took a few moments after reading it to calmly reflect on my current level of conviction to trading long only equities. Recovered losses and made gains since October 2008 by scalping small but numerous advances. My macro- view as a Canadian - Never,Never bet against the U.S., held me steady and continues to do so.

    I am a retail trader and by no means an expert,so it can be done and sites like yours have contributed greatly to the growth of my Discipline.

    Thanks Again

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