Wednesday, September 17, 2008

a day in the shitter

aig, but probably more due to leh unwinding - hedges cannot get their $ out of leh international; clients freaked out; funds freaked out; another minus 4% day...

Although it was looking like we might be able to coast into the end of the day well off the lows of the session, a fresh wave of selling kicked in as the final hour got under way, sending the indices straight down to close at the worst levels of the day with average losses of 4.57% on heavy volume and breadth that was right at 8:1 to the negative. While the results weren’t as bad as we saw earlier this week and the selling never felt really “panicky”, the averages did finish at fresh multi-year lows, and it is becoming obvious that investors are starting to be less concerned about holding stocks in hopes of catching a bottom and more apt to seek the safety of gold and treasuries.

Like we’ve been saying all day, as dismal as this recent action is, we are finally getting the sort of purging that will crush hope and make it so absolutely no one wants anything to do with stocks. We’ve been arguing for months that this is the way a bear market will end, and we’re starting to take some steps in the right direction. That’s not to say we don’t have more downside to come or that a new bull market is just around the corner, but this is the type of mood that will set the stage for an eventual low.

We talked the other morning about how we’ve been hearing from many of you that you’ve respected the primary downtrend and kept whatever long-side exposure you may have to a minimum. The vigorous protection of our capital puts us into a good position to profit once conditions improve, but if you find yourself holding some small positions that have taken major hits, don’t forget that it’s never too late to sell. Clearing the books so you can look at the market with fresh eyes is often quite liberating, even if your sales are poorly timed.

Moving forward, we’ll continue to stay defensive, but we are looking at building some of the natural resource plays we started today. Coal, oil and natural gas look to be finding some support, and market players will likely be looking towards hard assets as the conditions in the broader market continue to be uncertain.

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