Darwin Didn't Say Quite What You Think He Did

By: Marygwen Dungan | Thu, Jan 8, 2009
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What Darwin actually said was a lot more inspirational considering where we are now. "It is not the strongest of the species that survives, or the most intelligent that survives. It is the one that is the most adaptable to change." ***sigh, my hero***

Although I have never worked in retail anything, some of my best friends are retail customers and a few have asked for my opinion on others' advice, most recently Suze Orman's.

Ms. Orman's seminal work "The Dangers of doing nothing in 2009", Costco Connection Magazine January 9, 2009, is available now without charge at the checkout counter. In it she recommends loading up on stocks to be positioned to ride the wave up, which she's sure is coming, along with the spaceship, I guess.

IMO, her recommendation is irresponsible. However, she's not alone in advising retail customers to stay in stocks, the large brokerage departments (as you remember, all the big ones went bankrupt, were absorbed by banks, or restructured and became banks themselves to get on-going bailout money) are making the same recommendation for 2009. As a matter of fact, it was their recommendation for 2008 too. And this advice was repeated throughout the year so persuasively and with such wrong-headed confidence that I'd cringe at their humiliation if I thought they felt any.

Here's how their advice worked out:

Dow Full-Year 2008

Caption: After the 1987 crash the Dow finished up about 2% for the year, so 2008 was far, far worse.

We see that the market finished the year up off November lows. This could be due to a bear market rally, the fourth wave up according to Elliott Wave Theory, or some other technical pattern that will correct soon. Or, according to retail brokers and advisers, it's because the bottom is in and stocks are about to zoom up because . . . because of what? . . . because corporate profits are about to soar. ***that must be it***

Also, note that each time there's been a substantial uptick, it's off lower highs.

Apparently, the Fed and Treasury would like to bail out every entity listed on any of the exchanges, in addition to the foreign banks and central banks they've been slipping money to under the table. They can't save them all, for one, and for two, the money they're giving away has to be paid back at some point. None of this benefits the economy, corporate prospects, or the stock market. After each multi-billion dollar bailout, the stock market stabilizes briefly then resumes its decline. So, stocks will continue trending lower and if prices don't fall fast enough to reflect reality, the markets will settle things up and crash.

For investors who thought they were well diversified by owning foreign stocks, here's what happened to their portfolios:

Russia Stock Market Full-Year 2009

2008: The year in markets (WSJ)

U.S. indexes
  Dow Jones Industrial Average -34% 
  S&P 500 -38% 
  Nasdaq -40% 
  Dow Jones Financials -55% 
  Amex Oil Index -38% 
International indexes
  Germany DAX -40% 
  FTSE 100 -31% 
  Japan Nikkei 225 -42% 
  China Shanghai Composite -65% 
  Mexico IPC -24% 
  Brazil Bovespa -41% 
  Gold +5.5% 
  Crude -54% 
  Dollar index +6% 
  Pound vs. dollar -28% 
  Dollar vs. yen -18% 

Whoops, they forgot the Russian stock exchange, which was down 72% and it wasn't even open every trading day:

Caption: It's the oil, глупый.

OMG, the humanity . . . I mean, would you look at those skid marks.

This is the worst performance since the first depression and reflects a very unhealthy world economy. There is no beneficial event of sufficient magnitude within the realm of imagination that could turn this around anytime soon.



Author: Marygwen Dungan

Marygwen Dungan

Marygwen has worked in banking and securities for 25+ years. Her first job after the University of PA undergrad and Wharton grad was as an investment banker at Paine Webber. After a stint in international commercial banking, MG returned to Wall St. as a risk-arbitrage sales trader, initially working for Merrill Lynch.

For the last ten years MG has been a supervisory analyst and editor of institutional equity and economic research for several multi-national financial firms including Banco Santander, Credit Lyonnais and Fox-Pitt, Kelton, a subsidiary of SwissRe. She currently writes for BlownMortgage and contributes to other top-rated blogs. Personal interests include historic restoration and organic farming.

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