"The time to buy is when blood is running in the streets."

Discussion in 'Wall St. News' started by aresky, Sep 19, 2008.

  1. aresky


    Steven Goldberg, Contributing Columnist, Kiplinger.com
    Friday, September 19, 2008; 12:00 AM

    "The time to buy is when blood is running in the streets." Baron Nathan Rothschild issued that famous dictum in the early 19th century, but it holds equally true today.

    The crisis on Wall Street has caused so much panic that I think it's time to increase -- not decrease -- your allocation to stocks. All the usual caveats apply: Don't do this with money you're going to need in the next few years, and don't overdo it. But if you're a long-term stock investor, go ahead. A year or two from now, I have little doubt you'll be glad you bought during this tumultuous time.

    Why? When the fear is this thick, almost everyone who is going to sell stock has already sold. Further bad news -- and I have little doubt that there will be more financial failures -- will likely push stocks down only so much further. Conversely, even a thimbleful of good news will turn sellers into buyers.

    Steve Leuthold of the Leuthold Group, a Minneapolis investment-research firm, is one of canniest analysts of the stock market, which he has been studying for nearly a half century. After the Dow Jones industrial average plunged 449 points September 17, he issued the following advice to client

    "This is no time to be joining the overwhelmingly frightened investor crowd. At minimum, the market looks to be on the verge of a major rally even if it's only a snapback bear-market rally. Even though you believe the market is ultimately headed much lower (we don't), this is absolutely the wrong time to sell stocks."

    Leuthold isn't basing his recommendation on gut instinct. He and his colleagues study hundreds of market and economic indicators. Their record of calling market turns is terrific. Among those he nailed almost to the day where the start of this bear market almost a year ago, and the start of the previous bull market five years earlier.

    Leuthold's signals have been flashing positive (obviously wrongly) off and on for much of the summer. But as the market has fallen sharply this week, his models have turned much more positive -- particularly those indicators that measure investors' emotions.

    "It's been almost 21 years since the current level of fear has prevailed in U.S. financial markets," Leuthold writes. That was right after the 1987 crash when stocks plummeted 23% in one day. What's more, in the 45-year history of his model measuring investor sentiment, the current readings are "the most bullish ever."

    His model measures emotions related to short selling, options activity, mutual-fund selling and a host of other data points. They are screamingly bullish because investors are so frightened.

    Is there reason to be frightened? Of course. Major financial institutions are failing right and left. The Federal Reserve and the Treasury remind me of the legend of the little boy who prevented Holland from flooding by sticking his fingers in the dikes. You fear the government will run out of fingers -- or, in this instance, the trust of the world's investors.

    Housing prices, meanwhile, continue to tumble -- meaning the underlying value of all that toxic mortgage debt continues to erode. It's hard to see the economy bottoming before the housing market does.

    But, remember, the stock market is a discounting mechanism. I think that most of the current and future economic woes are already reflected in stock prices. Indeed, the stock market generally turns up about six months before the economy does.

    Despite the current crisis, I don't believe we're headed for anything like the Great Depression. For one thing, the Fed and the Treasury are squarely facing up to our problems. Unlike the case in Japan in the 1980s, no "zombie banks" are being allowed to stay afloat for years and years, bankrupt in everything but name. Instead, we are quickly taking down the weak institutions that are overwhelmed with subprime collateralized-debt obligations and other bad paper.

    From its high October 9 of last year, Standard & Poor's 500-stock index has fallen 26% through Sept. 17. I know that's bad -- I'm an investor, too. My holdings are hardly soaring. But in the average bear market since 1945, the S&P 500 has fallen 32%. We're not far from that level now. Might the market fall 35%? Sure. But I believe we're closer to the bottom than most people think.

    Sam Stovall, chief investment strategist at Standard & Poor's agrees. "We believe that from a technical perspective the bottom will likely occur on or above the 1060 level, which would equal the average bear market decline of 32%," he wrote in a note issued after the market closed September 17, with the S&P 500 at 1156. What's more, he says the market will finish the year 8% higher than the September 17 close.

    That's not all. Once a bear market ends, the stock market tends to rise sharply. On average, stocks surge 38% in the 12 months after a bear market trough.

    Says Leuthold: "Traders should be buying stocks, futures and ETFs now. Long term investors should use this current opportunity for selective buying, including some financials When your emotions say sell, sell, sell ... don't."

  2. Todays rally spoiled a few of the prospects that I thought were starting to look tasty. I'll wait for more blood.

    Another comment was that after bear markets stock tend to rise quickly. For this to happen there needs to be money.

    Anyone care to guess how much money is on the sidelines.
  3. "The time to buy is when blood is running in the streets."

    Yeah but I sure as hell would not want to be an investor in this market. This is a trader's market.
  4. "The time to buy is when blood is running in the streets." Baron Nathan Rothschild

    "I hate quotes. Tell me what you know." Emerson

    Do you see how many quotes that guy has in the article? Based on Emerson, I don't think he knows anything.
  5. Dark and powerful forces manipulate the markets. They always have and they always will. Does it matter if it is governments, corporations or private individuals? Does it matter if is some descendent of the Robber Baron Nathan Rothschild? Not really, who cares? To deny manipulation is to deny history. It is to deny that the Nathan Rothschilds of the world exist. That is a dangerous naivety that has no place in successful investing.

    Like Nathan Rothschild you need intelligence and the ability to interpret that intelligence. Just as importantly though, you need the ability to see what it is that is right in front of your face. If you cannot see manipulation of all our markets, not just the bullion markets, then you cannot understand the price movements happening right now.

  6. The real time to buy is when cranky, bent over old men with canes get out of their chauffeured cars, hobble up to the exchange floor, and buy severely distressed stocks, They then hobble back to their limos, and retire to their comfortable estates. They wait until the next catalytic event, and do the same thing over, and over.

  7. I don't think buying stocks was the thing to be doing after Black Monday in 1929. They went MUCH lower after that. I think this is what we may be facing if this deleveraging really gets going.
  8. The men in the canes came in and bought in 1932, just like they did in 1907, 1893, 1873, 1857, 1837, and 1819. They were buying at low prices, and allowing the upward drift of the market make them money. They established their positions from those who capitulated.
  9. The men in canes is a figment of your imagination
  10. We never get the chance. As soon as the market winces with a paper cut, the Fed and Paulson send in a brigade of ambulances.
    #10     Sep 20, 2008