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Tuesday, February 27, 2007

 

Market's Bottom Falls Out

Today was one of those days when you undo 6 weeks of a hard slogging bull trend in one miserable session. People are blaming the reduction in trades handled by specialists, and the absence of their role in providing liquidity, but I think that's nonsense. No matter how buyers and sellers are matched up, there are two sides to every trade and they ultimately agree on a price. You're not going to tell me that all those sophisticated hedge fund managers and money runners are using market orders to sell shares in lots of 10,000! No, downdrafts are typical of bull markets, and whether you call them corrections or reversals depends on what happens next.

One thing for sure is that the technical damage caused by a day like this hangs around for a while. So technical rebounds, involving short covering, are usually brief and limited. Meanwhile, we could have an aftershock tomorrow in the way of a downdraft due to margin calls. Those poor fellows who buy and own stocks on credit are going to have to sell something tomorrow to satisfy their broker/lenders. So while the commentators tonight were automatically calling this a buying opportunity, it's not time to go "all in" based on my experience.

No investor emerges unscathed from a day like this (I don't consider short sellers to be true investors, they are traders) so the redwavemusings portfolio took a pretty good shellacking. However, a day like this serves as a great reminder how important the discipline of a system is and in particular, asset allocation. Keeping 20% in cash was wotth about a savings of $12,000 or so today. Unless the market rebounds right away, I should be nibbling at the market starting next week.

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Since the Bush Administration's communication skills are so lousy, it is up to Senator Lieberman to explain to people why it is so important not to cut and run in Iraq and what the logic of the troop surge is. He did so very persuasively in an op ed in yesterday's WSJ. To think that the Dems were so ready to throw him over the side last fall is scary.

Meanwhile a report from Iraq today about a bombing that killed a bunch of kids on a soccer field just makes you wonder about the mentality of what we're facing, and how anyone can dispute the moral imperative of the war against terror. Whether it's possible to bring democracy to the Middle East is something intelligent people can debate. Whether you can turn your back and allow violent atrocities to continue unabated and unchallenged is not really subject to debate, in my opinion.

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The Oscars predictably hit us with the usual high dose of political correctness, but the fawning over Al Gore, who looks more like Herman Munster every day, got a bit nauseating. The fix was in for Best Song, since Melissa Etheridge's global warming dirge was up against not two but THREE songs from Dream Girls, any one of which could have won if nominated by itself. Aside from those criticisms was the unrelenting boredom of the show where no awards of any consequence were given in the first hour, and all the major awards were crammed in to the last very late half hour. And I still can't underfstand what's funny about Ellen.

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On 2/26, I sold 900 shares of WLVT out of my IRA at 2.49. 500 of these were purchased at 4.36 on 3/8/06 and 400 @ 3.44 on 6/7/06. So we took a nominal loss, but one needs to consider that it was only 4 weeks ago that we bought a bunch of these shares for the taxable account at 0.81.

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