If you take a look at the dates of my postings, you'll conclude (and correctly) that I have taken a month off from writing about the market. I always forget how busy October is in the mathematics department on campuses around the world, with all of our students panicking about math they should have learned last semester. Also, I took some time off from writing about finance to let, as I predicted in my last post, the smarter money of the bond and currency markets drive the stock market lower; yet, the movement of the S&P 500, for example, was not just lower, it was range-bound between about 1100 and 1250.
During those ups and downs, much has happened in our country. The outrage over the U.S. banks has spilled from dinner parties---where I have gleaned that urban professionals, pockmarked with NPR rhetoric, are furious about the banks' plan to charge monthly fees for their services---to Wall Street in the form of the Occupy Wall Street (OWS) movement. The OWS claim is that only one percent of the population make most of the wealth in the U.S., whereas the other 99 percent have been reduced to mere serfs. As a mathematics educator, I was delighted that this crowd got its arithmetic correct; however, as a logical human being with the capacity to employ deductive reasoning, I was disappointed that they have misidentified the upper 1 percent. The real 1 percent are: our doctors, who are writing us a collective overpriced prescription with one hand while emptying our wallets with the other; the U.S. insurance system, which uses mathematical statistics very well to predict how much unregulated profit they can milk from us through premiums; and the lawyers, who will take any side of an argument for a profit, usually a large profit at the expense of consumers in the form of higher costs for all services, especially health care, and insurance premiums. Oh, as it turns out, not much has happened in our country since I last posted an article.
Not much has happened in Europe either, which is perhaps the real source of the recent market diffidence. European banks are experiencing our Fall 2008 now but in slow motion, which has infuriated market participants in the U.S., who are largely short the U.S. indices with the hope of a European Lehman moment, when the world's banking system teeters on the brink of collapse, so that they can profit from a sympathy stock market crash on this side of the Atlantic. When the Europeans don't panic the way Americans would about the need to recapitalize their banks, those traders who are short the U.S. market must cover, and the market action of the last few weeks ensues, a range-bound exercise in hysterical boredom.
I would be careful during the next week establishing new short-term positions except on significant pullbacks; however, if you, like me, are willing to hold your shares (almost) forever, now is at least a decent time to put money to work. During the past few weeks I have added to my (nearly) permanent portfolio by buying more shares of Alcoa (AA), Bank of America (BAC), and PIMCO's closed-end Corporate Opportunity [Bond] fund (PTY), which currently boasts an 8 percent annual dividend yield. With all the negativity around the world (even some caution coming from China), investors and especially traders are more frightened than usual. Historically, such periods of hand-wringing and teeth-gnashing are great times to buy, but could this be the market that everyone (that is, the shorts) called correctly? Probably not, but does the fact that a typically contrarian investor can even suggest that the ubiquitous bears on Wall Street are finally correct point to a near-term bottom?
