Tuesday, February 27, 2007

More Market Sell-Off Thoughts

As you know I've been expecting a pullback or correction in the market since the Fall. It is amazing how a day like this can wipe out months of gains. And while I've been positioned for this day, it's never a good feeling to see folks lose money.

Barney Frank made some interesting comments when questioning Bernanke during the last FedSpeak. Barney said, "DUDE! The economy is below trend growth!" (I'm paraphrasing). Has the Fed gone too far with rate hikes? Did they tap on the breaks a few times too many? Maybe. And the higher gas prices are acting like a tax hike. And China. And this. And that. We can always scan the headlines to find the blame, but what didn't matter the last few months suddenly matters.

I believe we're still in a bull market. Corrections are normal and healthy. Sometimes we're all guilty of micromanaging our investments, when the best course of action is often times just "staying the course." (A popular phrase, lol). Dollar cost averaging into the market is still the best way to accumulate wealth over the long term. Nothing has changed because of today.

If I were to guess the short term, (and that's all it is... a guess), I'd expect a little bounce and then some more selling. We can't ignore the selling volume that came in today. And short-term traders will try to protect their gains since the July 2006 rally. I'd imagine that an SP500 pullback of 5-10% from the highs would contain the correction and present a buying opportunity for those who like to rebalance their portfolios on strength or weakness as I do.

Investing is a game of diligence and patience. The country is at full employment, businesses are growing, and the government is deficit spending at federal, state and local levels. Greenspan's calling for a recession in 2007 is wrong; and he is often wrong. Hopefully you didn't sell stocks in 1996 when he made his famous comment of "irrational exuberance" in the stock market. As you know, the market did pretty good the following years.

Just some thoughts. I don't see a recession on the horizon. Too much money flowing out there.

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