| Read Jack's "diary" of life in Washington, DC after the terrorist attack. Click here. |
I remain optimistic that the intense short-term economic chaos immediately in front of us will rather quickly evolve into at least preliminary signs of growth within a few months. What's in "the cards" for the next two months? Nothing but wildcards. Anybody's guess. I'm prepared to assume that the next two months will be really lousy (essentially a hard-landing recession), but I also acknowledge that nobody really knows how people and businesses will ultimately react to recent events, the effects of recent events, coming responses to those effects, and how they will evolve in their responses.
Tens of thousands of airline employees thrown out of work will be a major negative force in the economy. On the other hand, all that money that would have gone towards air travel will find a home elsewhere, either as spending, savings, investment, or maybe just paying off some credit card debt. Any of those alternatives will be good for the economy.
All of the coming economic reports for July, August, Q2, and even Q3 are truly meaningless now. In fact, I wouldn't put much weight on any report covering any period before the beginning of October. Not that things will be back to normal by then, but at least then we we be starting to move on. As always, I will be looking at every economic report, but I will be more interested in the words and actions of businesses from here on out. As well as the consumer confidence numbers (starting in October, that is).
The military responses to recent events are rather uncertain at this point. I'll hold off on commenting for the time-being. Usually, Wall Street responds very negatively to any military action. But this time, there may be a certain patriotic zeal (justice, revenge, whatever) that will keep the market going. Even rumors about possible action against Afghanistan or Iraq will get peoples' juices flowing. The initial shock of Tuesday's events may be worn off. Now, people, especially the types that inhabit Wall Street, want to see "some action". The President seems poised to deliver.
As far as this crazy idea that everybody should be patriotic and buy stock today, that's not my thing. I recommend that each of you do whatever you would personally be inclined to to do purely as a result of looking at all the facts as you see them, short-term, medium-term, and long-term. Trying to intentionally distort the market is a really bad idea. The market (and the economy) really is the net sum of all our individual actions. Use your money to "vote": buy if you feel optimistic, sell if you're pessimistic, and do nothing if you're just not sure. The theory is that recent events will awaken people out of the numbness that resulted from the bear market of the past year and a half.
If a zillion people all try to buy on the opening on Monday, the result will be that the market could just seize up in one giant "order imbalance". The purpose of the market is to balance buy and sell orders. If everybody is buying and nobody is selling, nothing can happen. What really happens is that the bid price ratchets upwards until it is high enough to attract SOMEBODY into selling (or the ask price moves downwards if everybody is selling and nobody is buying). If you put in an "at market" order, don't blame me if you end up paying a sky-high price (or getting a pittance on a sell order). Better to bell or sell with a limit order. The market could leap way up and then fall way back after the initial wave of buy orders are filled (or fall like a rock and then rapidly recover after an initial wave of sell orders). You could end up buying stock at a price well above the price of just a few hours later (or selling at far less than the equilibrium price).
Nobody will be served if we all blow our wads at the opening of the market. Much better to be incrementally investing over time. Whenever the buying dries up, the market will fall and that's not what we want or need right now.
Also, if everybody is trading at the open, don't expect that the internet will be very responsive or even necessarily available at all. This is one time when a real "live" broker is of value. I am writing this column Sunday night to avoid any potential internet problems on Monday morning. In fact, I personally won't even be looking at the market in the morning at all.
Some believe that the Fed could give us a surprise half-point cut in interest rates even before the market opens. We'll see. It wouldn't surprise me, but I'm not counting on it either.
I'll be making my usual weekly dollar-cost averaging purchase on Monday. Usually I buy around noon. I may delay if the market is being really crazy. Today I'll make an additional, larger purchase if the market decides that Chicken Little is right and that the sky really is falling. If I do make such an extra purchase, it will be very near the close. As has been my habit for a while now, my purchase will be LEAP "call" options on the S&P 500 Tech Sector "Spider" (XLK) with a strike price close to the price of the Spider. I do not recommend options to anybody that doesn't have enough experience with them to not need my advice anyway.
If you do buy or are holding long positions, be prepared for the cynics who may well continue to "sell any rally". As well as those who will insist on "taking profits" after any and every rise. And don't expect cynical short-sellers to act in anything remotely resembling a "patriotic" spirit.
Don't worry too much about the short-term fluctuations of foreign stock markets, oil prices, or foreign exchange rates. Right now everything is up in the air waiting for U.S. markets to get back up and running. Give all markets two weeks to settle down.
There are lots of traders who focus on predefined responses to events and "historical relationships". To many of us these seem like irrational, knee-jerk reactions, but there is a method to their madness. That does not mean that their short-term evaluation of the situation will hold up for even more than a few minutes. Let the traders do their thing and then cooler heads can prevail. Besides, for most of us, trying to do anything in the market when traders are furiously adjusting their positions is just a losing proposition. Better to wait for the dust to settle.
What I do know for sure is that Monday will be a very interesting day. Be prepared for ANYTHING, the good, the bad, the ugly, the beautiful... whatever.
Jack Krupansky
Updated: September 17, 2001 12:39:53 AM -0400
Copyright © 2001 John W. Krupansky d/b/a Base Technology