vanderbilt mortgage and finance

What is Going on in This Crazy Mixed Up World?

I mean I know that Mattels Hot Wheels dont use much gas but should they be worth more than GM? Even Fords value is greater than GMs. Stay tuned as this saga unfolds. Its going to get very hairy in the market before the dust settles. So if you are emotionally suffering now because of the decline expect more of the same. But dont watch your portfolio too closely because it will make you do things you shouldnt do.
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By Steven Pomeranz
Yes, it's true. I checked it myself 'cause I couldn't believe it. The total market value of General Motors is less that the total market value of Mattel. What is going on in this crazy mixed up world? I mean, I know that Mattel's Hot Wheels don't use much gas, but should they be worth more than GM? Even Ford's value is greater than GMs. It's less than Harley-Davidson Inc., the motorcycle company, H&R block, it's 1/2 the value of Avon products, 1/3 the value of carnival cruise lines, 1/4 that of Yahoo, 1/9 of McDonalds and last but not least, 1/66 the value of one other Dow component, Exxon.
That must be quite humiliating for GM management. So to general Market conditions. Not too good. We saw a decent bounce of the lows last week but unfortunately it was short-lived. Oil is still below 130 and the dollar improved slightly but a report on home sales spooked the market. I was watching Kudlow the night the numbers were announced and he flashed a chart which indicated a decline in the rate of decline in home sales. Yes, a decline in the rate of decline. In other words, Home sales are not declining at as fast a rate as they were. He also displayed a chart showing a rise in home prices from a bottom hit just a few months ago. His idea is that the report was positive. However, the market did not. Simply stated, the market hated it and all the banks got slammed once again as the Dow dropped over 230 points.
Technically, the negative tone of the market has not changed. I'm sounding like a broken record, but I have been saying since December to take a cautious stance if you need to watch your money over the short or intermediate term. If you are a younger, long term investor, do not get cautious here, keep investing. Declines are your friend not your enemy. But for those in, or approaching retirement, a cautious stance is warranted.
What does this mean? It means keeping more cash on hand and investing in high quality- short-term bonds as a back up. Doing this will get you a higher yield than money markets but with a little less liquidity. Think of a 6 month CD. You can get to your money before the 6months are up, but it is subject to penalty. With short-term bonds, the prices will fluctuate a little and you may get less than it is worth if you cash it in before maturity, but if you wait, you'll get all of your principle back.
Having said this, we have not hit a critical low as of yet. The volume of that big 238 point decline last week did not indicate that it was caused by panic selling. Panic selling is the kind where investors say: "get me out at any price." We need to see panic in order for a true bottom to occur. Although the selling was widespread, hitting almost all stocks, and that is important, it indicates that more downward movement is necessary to bring out a brand new set of buyers. When this will happen, at what price... no one knows. But I'll keep looking and let you know.
What am I doing here? My posture is still the same. For risk-averse investors, I am holding a fairly large amount of cash, anywhere from 10 to 35%. I am buying select preferred stocks for my income investors and even for some aggressive accounts because I think there is a good chance of capital appreciation when this banking situation sorts itself out.
I am watching housing related stocks closely because they are selling at less than book value at the current time, but I want to see a little more stabilization In the market. I don't think I'll catch the bottom, but that's okay. The middle 2/3rds is more than enough.
Stay tuned as this saga unfolds. It's going to get very hairy in the market before the dust settles. So if you are emotionally suffering now because of the decline, expect more of the same. Do not, I repeat do not sell on those very bad days. Sell a little as the market rises or close your eyes and suck it up. This stuff is cyclical but if you are properly diversified you will see a turn around in the future.
A final note. I was talking to a client that was very upset about the market's decline. The market had been down about 14%, but her portfolio was only down about 3%. I asked her why she was so upset. She said it was because of the decline, so I asked her how often she looked at her portfolio. "Nightly, on-line," she answered. I was shocked. I told her it was a very bad habit to look at your portfolio value every day. Taking up smoking would actually be better. Of course, I jest but my point is ... don't watch it too closely because it will make you do things you shouldn't do.
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