Boo Hoo!

Oh, boo hoo, people! You think this is crash? Please, this ain’t no crash.
We’ve become so used to no volatility, we forgot what a normal market acts like. I’m sorry, but this was nothing compared to the olden days, say 1999. Yesterday may have been the worst day in four years, but going back ten years, it was ranks just twelfth. Twelfth, people!
Back then, we would have laughed at this. Four hundred points? Please, that was a lunch break. There were three days worse than this in August ‘98 alone.
Let’s see how bad the big bad bear is. For the year, the S&P 500 is now down 1.36%. OMG! Throw in dividends, and it’s down 1.05%. Are you heading for the hills now?
So what went wrong? I dunno. When in doubt, I blame the Fed. It’s easy to do, and there’s always a chance someone accidentally told the truth. But this time, we have two Fed chairmen in play, old and new, Benilocks and the Maestro.
The former Fed chair is the more likely suspect. He was in the Far East, and according to the AP, Greenspeak was in top form:

Former U.S. Federal Reserve Chairman Alan Greenspan warned Monday that the American economy might slip into recession by year’s end. . . .
“While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 . . . with some slowdown,” he said.
Greenspan said that while it would be “very precarious” to try to forecast that far into the future, he could not rule out the possibility of a recession late this year.

Perhaps there’s a chance that the media could possibly use what some might believe is possibly the most provocative headline: “Greenspan Warns of Likely U.S. Recession.”
All observers agreed that the trouble started in China. The market there fell by nearly 9%, which was the worst day there in a decade. OK, so what caused China to wobble?
According to Bloomberg:

Stocks fell yesterday after the State Council, China’s highest ruling body, approved a special task force to clamp down on illegal activities in the market. Investors were concerned the Chinese government would impose further measures as the National People’s Congress, China’s legislature, meets next week.

Let me get this right. My portfolio took a hit because of the Chinese National People’s Congress? Talk about globalization. First, the bird flue, now a special task force of the State Council. Now there’s a winning combo, discarded 19th century economic theory and 21st century securities regulation!
I’m sorry, but I can’t accept that some Communist bureaucrat is the reason for the loss of half-a-trillion dollars. What kind of connection does a company like Graco (GGG) have to Shanghai margin requirements? Outside the occasional takeout, I’m guessing it’s pretty slim.
Let’s look at the indexes for some clues. It wasn’t a size issue. The S&P 500 and Small-Cap 600 (^SML) were down nearly identical amounts (3.47% and 3.50%). But the Mid-Cap 400 (^MID) was only down 3.08%.
Nor was it a valuation issue. The Growth Index (^SGX) was down 3.49% and the Value Index (^SVX) was down 3.45%.
Here’s the most telling fact about yesterday: There were 4.24 billion shares traded on the NYSE; 4.19 billion was down volume, just 45 million was up volume. That wasn’t a typo, 45 million. Declining volume led advancing volume by more than 93-to-1. Declining issues led advancers by more than six-to-one.
This was no boat accident. And it wasn’t China either. It was a broad-based sell-off.

Posted by on February 28th, 2007 at 7:36 am

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