Is This Time Different?

With the recent volatility in the stock markets, I have had several people ask me if this time is different. The easy answer is yes! The reality of the past 13 trading days is that the markets have had an unusually high level of volatility. For example, during the past 13 trading days, we have had 9 days during which the DJIA has moved up or down 400 or more points. Looking at the NYSE operation companies, we have had 9 days during which the percentage of stocks up or down in a given day is 90% (I don’t believe that has ever happened before). As I look at what is happening, it is clear that there are two groups that account for most of this volatility. Small investors have panicked and programmed trading, where computers make the decision to buy and sell based on algorithms. In the first case, small investors, many of whom were burned during the 2008-2009 meltdown of the markets, panicked. “Once burned, twice shy” my mother used to say. By running for the fire exit, many of these individuals, having left in fear, will certainly maintain whatever losses they incurred up to the point of exit and will have a difficult time deciding when to get back in. It has been interesting to see where they are going with their money. Most have gone to money market funds, which are paying nothing, or to gold, which is at its highest in history. As I see gold moving up, I keep thinking of the housing bubble of 2005 when many people said you can’t lose money on gold--oops, I mean real estate. If this volatility continues, we may decide to take some of our equity funds and reduce positions, but to give this a knee jerk reaction is a mistake. I, along with many of you, lived through the dark times of 1974 when markets plummeted. After President Nixon’s resignation in August and his pardon by President Ford in October, the US appeared to be doomed! All of that was forgotten in December as the markets soared. In 1992, we were in an economic downturn, the Japanese were taking over the world and President Bush was kicked out of office because of a dismal economy. Look at what happened between then and 1995. Often, when things seem to be the most dire, Americans bounce back. I believe such will be the case this time, but it sure tries one’s patience as you live through it! I still believe that next year at this time will be better than this year. At this point, this does not appear to be like 2008-2009 but we are preparing to do what’s necessary if the direction does change. Ed Mallon