CNBC Doom's Manifesto: Fight The Panic!
Despite Market Losses, World's Not Ending
Though not easy, it is possible to make a bullish case for the markets going forward. Here's a list that's hardly comprehensive, but does provide a starting point for discussion:
- The Volatility Index, known as the VIX, is registering historic levels of fear. Because the crowd is usually proven wrong, it's a contrarian indicator, meaning that a sky-high VIX could signal substantial rallies ahead. Heavy put buying is always a good sign that a market bottom is near.
- Unprecedented global economic cooperation should help us all. Wednesday's global rate cuts might not have led to a rally (yet), but they gave us the first fighting chance in some time.
- At some point, the market is going to run out of sellers, pure and simple. That's even the case with hedge fund redemptions, which seem to have caused some of the downturn to date.
- There are HUGE short positions out there. At any time, a short-squeeze rally could result from panicked traders who are suddenly forced to cover. That alone could cause a breathtakingly enormous rally, the likes of which we have never before seen. Have you ever seen the Dow UP 700 or 800 points in a single day?
One of these days, shorts will be wiped out in a matter of hours, if not minutes. It's like playing with matches in a dry field, the result could be wildfire. They've had it much too easy, but the party could soon be over.
- The Dow is down 1800 points in just over a week and hasn't had an up day in October. Can that really continue forever? Not bloody likely.
- The NASDAQ has been slaughtered not because of ANY company-specific news, but instead due to forced selling caused by hedge fund redemptions. That has led to stunning bargains in companies such as Intel, Cisco, Microsoft, Starbucks, Apple and even Google, not to mention hundreds of others. Do you really believe we will see these low prices last for long?
In fact, many traders are already taking advantage of these dips to buy Google, Apple, Cisco and other tech stocks.
- Markets have now more than baked in any global recession, even a fairly significant one. But what if firms outside of the banking and retail sectors aren't hit as hard as we've come to expect? We're assuming the worst, but we don't know whether that will be the true result.
- Wall Street has apparently assumed that the government bailout of the financial industry won't work or will take too long to implement. But what if it does have an impact?
- The Fed has undertaken an unprecedented wave of economic shock treatments for our financial system that in ordinary times would have us rallying to the moon. They've also signaled that they are prepared to take even bolder steps should they become necessary. At some point, prices will reflect this market-friendly reality.
It took very little effort to come up with nine reasons to be positive about the market's future. What would you like to add? Please leave a comment below.
Together, we can fight the panic and return markets to normal levels.
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