A solid day on Friday did little to change the psyche of the investor. Weekend headline were dropping with fear-mongering as usual. I could paste in a list below but that would only start your Monday off on a negative slant.

The Mechanics Of Fear

We need to be patient and let these latest fits of panic work through the system. With the ugly start to the year, we already have the gold bugs, the Black Swan Hunters and the recession gang out in force.

One can always tell who missed the major gains since the Great Recession – one need only listen to the loudest voices espousing fear.

While I would love to think that the panic has run its course – I thing we will end up preferring it lasts a bit longer. I am not suggesting that it needs to go down a lot more. I am suggesting that the long-term investor would prefer to simply see it take awhile to go back up.

A couple tests of the lows and on lower volumes would be a sign that the push is dissipating.

China Really That Terrible?

I don’t often do this but I have included a link here to a story that I thought was a) surprising that it written and b) a bit more insightful of how far all the rabid fear over China has become. Keep in mind what we have said for years: China will be ok – it just is not able to grow as quickly as many wished or assumed. That is not the end of the world.

Speaking of Experts

We all know by now that the investor mass runs on emotion. Fund sales have seen high liquidation levels for months now – picking up speed in recent weeks. It is clear to me that there is simply an almost never-ending stream of underlying fears.

I repeat: Years ago I recognized that when you spoke to some who had lived through the Great Depression, they would speak as though it happened last week – but it was decades ago. I continue to feel that there is a wide swath of the current investor audience who will forever be harmed by the pain of 2008-2009. There will not be a set of numbers that will be good – nothing will be without risk in this new perception.

The secret? Nothing has ever been without risk. The stove was always on high heat – the masses had just never been burned that badly.


Readers know I like to include sentiment data often at key times in these notes and as market fluctuations unfold. Sometime, you get extremes in both mass audience psychology and the actions of insiders at the same time.

The latest data this weekend from BARRON’s show us that we have indeed reached these opposite extremes. While the sentiment surveys all show fear levels (bearishness) in the audience not seen for many, many years, company insiders have also set a recent multi-year extreme.

The chart below shows a buy/sell ratio of 3 – a multi-year extreme on the bullish side of the chart. Now, what this tells us is that while the listening audience is once again liquidating in fear, the operating audience is telling us things are not terrible at all. Indeed they are very bullish on the future.

Take this as a sign of opportunity as any further weakness unfolds.

Once again – extremes are being seen just as it feels the most uncomfortable, just as the headlines seem like they may be correct this time, just when you feel that urge to simply call it quits and keep your money in the bank – like the other $8 Trillion sitting idle, earning nothing.

As stated before – note the cash in the bank chart above shows those levels have doubled since the March 2009 collapse lows.

So Where Does This Put Us?

Well, I suspect in time, if we can be patient enough – and keep our discipline about us when all others suggest we run – we will find that this was another window of opportunity. This was another one of those periods that were very difficult to ponder in real time but would become instead another blip on the long-term chart of time.

Speaking of time, as one who rarely thinks about my age, I was a bit taken aback to hear that we are coming up on Super Bowl 50. Geez. They need to come up with a better title. Too depressing since I watched them when they were only one digit long : )

I digress.

Today we find ourselves once again awash in concerns. Earnings have idled as headwinds need to be fought. As the energy “crisis” works itself through the earnings onslaught, I am confident we will eventually see that more are helped – not hindered by this horrible, miserable event of having gas costs below $2 a gallon for many (tongue in cheek tone intended).

We continue to stand by the idea that long-term investors should be embracing this period with excitement – and by the way, thanks to medicine – we are all long-term investors. By that I mean to suggest that data now show once we get to 65, odds are very high we have another 20+ years to go.

The Baby Boomers retiring is not your Dad’s retirement scenario.

Generation Y is heating up the picture fast as we speak – even as we fret over energy earnings and China.

Remember: elephants don’t bite you on the ass.

Use weakness to your advantage. Short-term capital needs, as part of your overall financial plan, should not be at risk in the market anyway, so why fear cheaper prices?

Let’s get serious – pray for some more red ink and tests of lows – and use that weakness to build upon for a brighter future than the mass audience can anticipate.

More later.