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Generational Dynamics Web Log for 05-Sep-07
Investors grow more anxious, as markets continue their fall

Web Log - September, 2007

Investors grow more anxious, as markets continue their fall

Wednesday's comments were by far the gloomiest I've seen.

At 3 pm on Wednesday, the Dow was down by 170 points, or about 1Ľ%, and 700 points from its July 19 peak. This is not an uncommon occurrence, and normally comments would be in the category of "Oh, what a shame, but it will be back up tomorrow."

But not this time.

The headline on the Wall Street Journal Online site was this:

"STOCK MARKETS STAYED DEEP IN THE RED, underpinned by renewed concerns about weakness in the housing and credit markets."

The lovely CNBC anchor Erin Burnett reports the bad news on Wall Street. <font face=Arial size=-2>(Source: CNBC)</font>

The lovely CNBC anchor Erin Burnett reports the bad news on Wall Street. (Source: CNBC)

Now, this may not seem that significant, but I can't recall seeing any headline so gloomy in many years. Normally, the WSJ site would have something like "The Dow Industrials tumbled 170 points ...."

Someone in the WSJ newsroom didn't feel that "tumbled" was strong enough at 3 pm. But by Wednesday evening the headline was the more sanguine, "The Dow Industrials fell 143.39 ...."

There's more. At 3 pm, if you were listening to CNBC, you were listening to bad news, as the following headlines were displayed on the bottom of the screen, one after another, on the bottom of the screen as the various reporters and pundits spoke:

"Dow is about 700 points below July all-time closing high."

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"Stocks extend losses following release of Fed's Beige Book." (Note: The Beige Book is an economic summary published by the Fed.)

"10-year Treasury Yield falls to 5-month low after econ data, Beige Book." (Note: If Treasury yields are falling, it usually means that people are moving money from stocks into Treasury bills, in a "flight to safety.")

"Nasdaq lower for the first time in five sessions."

"29 Dow stocks lower." (Note: 30 stocks make up the Dow Industrials index.)

"S&P 500 on pace for worst quarter since Q12005."

I just noticed something very amusing.

You'll notice in the above picture, the caption reads, "The lovely CNBC anchor Erin Burnett reports the bad news on Wall Street."

The lovely CNBC anchor Erin Burnett explains why the "big money" is disappointed that the market didn't go lower. (Originally posted on March 5, 2007.) <font face=Arial size=-2>(Source: CNBC)</font>

The lovely CNBC anchor Erin Burnett explains why the "big money" is disappointed that the market didn't go lower. (Originally posted on March 5, 2007.) (Source: CNBC)

I just checked to see - when was the last time that I posted a picture of the lovely Erin Burnett? It turns out that it was in an article entitled "Last week on Wall Street," posted on March 5, 2007. You may recall that the previous week had seen a brief spasm of volatility after the Shanghai stock market fell 9% in one day. But now the spasm was over, and the market was going up again.

The lovely Erin Burnett was asked by another reporter at that time, what do the "big money" investors think of what happened the previous week? Here was the answer she gave:

"The bottom line is that 'big money' wants more selling. They want to see and feel some panic in the market before they feel that it's over. They haven't liked the rally over the last couple of days."

Well, well, well! Let's hope that the "big money" is finally happy now. I would hate for the "big money" to be glum.

New readers of this web site may be wondering why I'm focusing on the gloomy remarks of a few reporters, if the fall in the Dow isn't that significant?

The answer is the same as the one I've given before: The thing that's changed since the market peaked on July 19 is a change in attitude and behavior among great masses of investors from "risk-seeking" or "risk-ignoring" to "risk-averse."

There was no such change when the market spasm occurred on February 27. There is this time.

As regular readers know, we've been conducting a speculative real-time experiment, comparing the 1929 and 2007 markets, following the respective market peaks. This data is taken from my Dow Jones historical page. On September 3, 1929, the market peaked at Dow 381.17. By November 15, it had fallen 40% to 228.73. This year (so far), the market peaked on July 19 at 14000.

The speculative comparison appears to be more and more incorrect. Here's an update:

    1929   % of peak (381.17)
    -------------------------
    Tue 09-03 ( +0.22%) 100%              2007   % of peak (14000)
    Wed 09-04 ( -0.41%)  99%              ------------------------
    Thu 09-05 ( -2.59%)  97%              Thu 07-19 ( +0.59%) 100%
    Fri 09-06 ( +1.76%)  98%              Fri 07-20 ( -1.07%)  98%
    ------------------------              ------------------------
    Mon 09-09 ( -0.36%)  98%              Mon 07-23 ( +0.67%)  99%
    Tue 09-10 ( -2.04%)  96%              Tue 07-24 ( -1.62%)  97%
    Wed 09-11 ( +0.99%)  97%              Wed 07-25 ( +0.50%)  98%
    Thu 09-12 ( -1.23%)  96%              Thu 07-26 ( -2.26%)  96%
    Fri 09-13 ( +0.14%)  96%              Fri 07-27 ( -1.54%)  94%
    ------------------------              ------------------------
    Mon 09-16 ( +1.51%)  97%              Mon 07-30 ( +0.70%)  95%
    Tue 09-17 ( -1.04%)  96%              Tue 07-31 ( -1.10%)  94%
    Wed 09-18 ( +0.65%)  97%              Wed 08-01 ( +1.14%)  95%
    Thu 09-19 ( -0.25%)  97%              Thu 08-02 ( +0.76%)  96%
    Fri 09-20 ( -2.14%)  94%              Fri 08-03 ( -2.09%)  94%
    ------------------------              ------------------------
    Mon 09-23 ( -0.84%)  94%              Mon 08-06 ( +2.18%)  96%
    Tue 09-24 ( -1.78%)  92%              Tue 08-07 ( +0.26%)  96%
    Wed 09-25 ( -0.01%)  92%              Wed 08-08 ( +1.14%)  97%
    Thu 09-26 ( +0.96%)  93%              Thu 08-09 ( -2.83%)  94%
    Fri 09-27 ( -3.11%)  90%              Fri 08-10 ( -0.23%)  94%
    ------------------------              ------------------------
    Mon 09-30 ( -0.41%)  90%              Mon 08-13 ( -0.02%)  94%
    Tue 10-01 ( -0.26%)  89%              Tue 08-14 ( -1.57%)  93%
    Wed 10-02 ( +0.56%)  90%              Wed 08-15 ( -1.29%)  91%
    Thu 10-03 ( -4.22%)  86%              Thu 08-16 ( -0.12%)  91%
    Fri 10-04 ( -1.45%)  85%              Fri 08-17 ( +1.82%)  93%
    ------------------------              ------------------------
    Mon 10-07 ( +6.32%)  90%              Mon 08-20 ( +0.32%)  93%
    Tue 10-08 ( -0.21%)  90%              Tue 08-21 ( -0.23%)  93%
    Wed 10-09 ( +0.48%)  90%              Wed 08-22 ( +1.11%)  94%
    Thu 10-10 ( +1.79%)  92%              Thu 08-23 ( -0.00%)  94%
    Fri 10-11 ( -0.05%)  92%              Fri 08-24 ( +1.08%)  95%
    ------------------------              ------------------------
    Mon 10-14 ( -0.49%)  92%              Mon 08-27 ( -0.42%)  95%
    Tue 10-15 ( -1.06%)  91%              Tue 08-28 ( -2.10%)  93%
    Wed 10-16 ( -3.20%)  88%		  Wed 08-29 ( +1.90%)  94%
    Thu 10-17 ( +1.70%)  89%		  Thu 08-30 ( -0.38%)  94%
    Fri 10-18 ( -2.51%)  87%		  Fri 08-31 ( +0.90%)  95%
    ------------------ -----		  ------------------------
    Mon 10-21 ( -3.71%)  84%		  Tue 09-04 ( +0.68%)  96%
    Tue 10-22 ( +1.75%)  85%		  Wed 09-05 ( -1.07%)  95%
    Wed 10-23 ( -6.33%)  80%
    Thu 10-24 ( -2.09%)  78% Black Thursday
    Fri 10-25 ( +0.58%)  79%
    ------------------------
    Mon 10-28 (-13.47%)  68% Black Monday      September 10
    Tue 10-29 (-11.73%)  60%
    Wed 10-30 (+12.34%)  67%
    Thu 10-31 ( +5.82%)  71%
    Fri 11-01  (Closed)
    -----------------------
    Mon 11-04 ( -5.79%)  67%
    Tue 11-05  (Closed)
    Wed 11-06 ( -9.92%)  60%
    Thu 11-07 ( +2.61%)  62%
    Fri 11-08 ( -0.70%)  62%                   September 21
    ------------------------
    Mon 11-11 ( -6.82%)  57%
    Tue 11-12 ( -4.83%)  55%
    Wed 11-13 ( -5.27%)  52%
    Thu 11-14 ( +9.36%)  57%
    Fri 11-15 ( +5.27%)  60%
    -----------------

We haven't really followed the 1929 pattern. The market has fallen 5%, but was down 15% at a comparable time in 1929. Furthermore, we haven't seen the sharp upward and downward movements we saw in 1929.

If this experiment is right, then the 1929 panic would be repeated sometime in the September 10-21 time frame. It's still possible, but it seems less likely in that time frame.

However, that doesn't mean that no panic is going to occur. Even if nothing happens in the September 10-21 time frame, a panic MUST occur, since the market is overpriced by a factor of 250%. Normally I would say that it might happen next week, next month or next year, but the dramatic change in investor attitudes, as illustrated by the change in tone of the lovely Erin Burnett's reporting, makes it very likely to occur in the next few weeks.

The only thing that could derail this is for masses of investors to go in reverse, returning to "risk-seeking" or "risk-ignoring" behavior. Although I've been surprised by many things in the past, Wednesday's ultra-ultra-gloomy comments would make it the biggest surprise of all. (05-Sep-07) Permanent Link
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Generational Dynamics Web Log for 05-Sep-07 Investors grow more anxious, as markets continue their fall

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Generational Dynamics Web Log for 05-Sep-07
Investors grow more anxious, as markets continue their fall