Saturday, November 1, 2008

It's Over

"For the month, the S.& P. 500 was ... down 16.9 percent, the worst showing for the index since it fell 21.8 percent in October 1987. The Dow fell 14.1 percent, and the Nasdaq index lost 17.7 percent."

Say goodbye to the most volatile month ever for U.S. stocks.

Both the NY Times and the Wall Street Journal are pointing out this morning that stocks may be cheap, unless the economy next year is much worse than what is in current earnings estimates. Either might be true.

If stocks are still expensive based on next year's numbers being too high, where is the money going to go? I believe that we have had successive bubbles in stocks then real estate then commodities because there is a lot of money that demands double digit returns or at least is willing to tke outsized risk to get it.

When you get your bonus in January and have some money to invest, are you going to uy a CD, or something with the possibility of double digits return? Stocks have underperformed cash, bonds and many/most commodities over the past 10 years.

You can buy gold and govvies, a condo in Las Vegas or a few tons of copper, but money is going to chase stocks again. If 2009 estimates get much lower the risk/reward that it happens from that level is going to be compelling. It may be already.

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