Being Street Smart
Factoring In Reality
by Sy Harding, editor
Street Smart Report Online
My recent columns expressing confidence that the
stock market will continue to respond to normal economic influences
and not to terrorism fears, resulted in a number of messages
expressing disagreement, claiming that terrorism and biological
warfare on our own soil is different, and as it continues, the
resulting fear will have the country, the economy, and the stock
market, paralyzed for many years.
I'm certainly
no expert on terrorism or fear psychology. The terror of occasionally
finding the coffee pot empty as I try to unscramble my thoughts
is bad enough. But I have spent several decades looking pretty
thoroughly into statistics and market history, and believe they're
telling us that not only investors, but the country in general,
will bring more rational thinking into their outlook once the
initial shock of the terrorist attacks wears off. There hasn't
been enough time yet for the actual personal risk, as opposed
to the risk implied by scare headlines, to be rationalized and
assimilated it into our psyche. But it will happen.
For instance,
every day a hundred million people get in their cars and drive,
without giving a thought to fear or risk. Yet every day hundreds
will die and thousands will wind up seriously injured. Fear of
the risk? Some will not even fasten their seat belt.
Thirty thousand
people die every year from the flu virus. Yet 50% of the 'at
risk' population, warned in the media that they are at risk,
will not even bother to get a flu shot. And the risk is not a
hundred or a thousand miles away, but at their side, in the next
cough or sneeze they witness.
Yet, 100 million
people across the country are now afraid to open their mail,
and a doctor friend told me this week he's being inundated with
requests to prescribe Cipro, as an Anthrax precautionary measure,
requests even coming from those who won't bother with a flu shot.
It is a terrible
thing that a dozen buildings housing thousands of people, and
even Congress and the U.S. Postal Service, were targeted with
deliberate Anthrax contamination, and that of those thousands
of targeted victims, a few dozen people were actually infected
with the disease.
But my point
is that it would take a huge escalation to achieve the risk level
of even the simple flu virus we face every year, with its 30,000
annual deaths, to say nothing of the many other risks of death
and injury from unexpected and unknown sources that we routinely
accept. We live with those risks, even ignore them, once we understand
them. The people of England, Germany, Ireland, and any number
of other countries having been doing the same regarding terrorist
attacks for decades, without any effect on their economies or
stock markets.
Terrorism can't be defeated? A little military retaliation and world pressure sure had an effect on previous uprisings of terrorism, embassy bombings, hostage takings, skyjackings, etc. One at a time, the big terrorism plans of Iran, Iraq, Syria, etc., faded away once their leaders felt the taste of retaliation. Even Fidel Castro lost interest in spreading his brand of terrorism into South America once his brother died in the fighting.
Meanwhile, back to the market. History also shows that the stock market is in danger after a substantial market rise that is surrounded by confidence that the good times will last forever (the most recent instance being a year and a half ago), while the best buying opportunities have always been after substantial market declines have investors depressed, and fear in surrounding conditions has them extending that downtrend endlessly into the future.
The latter was the situation a month ago. As reported here, our work was showing that the market was oversold and investors were way too pessimistic, even as the market was entering its favorable seasonal period of October to April. And sure enough, the market has been in rally mode in four of the last five weeks, and has come significantly off its September bottom.
The buying has come primarily from Wall Street institutions and insiders, while individual investors withdrew assets from mutual funds at a record pace in September, with indications that such withdrawals continued this month. But Ed Yardini, chief economist at Deutsche Bank, says, "Even as retail investors stampede out of stock mutual fundsinstitutional movement has been back into the market".
It remains to be seen whether this will be 'just' another substantial rally like that of last April/May from which profits will have to be taken quickly, or whether it is the beginning of something more lasting.
Either way, I am convinced the result will be based on normal market forces and not terrorist activity.
Editor's Note: Sy Harding is president of Asset Management Research Corp., 169 Daniel Webster Hwy., Meredith, NH 03253, publisher of The Street Smart Report, 1 year, 17 issues, $225 (now in its 14th year of exceptional market research for professionals and serious investors) and The Street Smart Report Online at www.StreetSmartReport.com. Mr. Harding has been consistently ranked in the Top Ten Timers for years. He authored the book, Riding the Bear How to Prosper in the Coming Bear Market, $12.95. In Riding The Bear, Mr. Harding reveals that while many Wall Street pros urge investors to hold steady during market declines, these same Wall Street pros and institutions sell quickly at the first sign of a market turning. He explains in plain English how the market reacts, how cycles work, and how to take advantage of them to hold onto your bull market profits - and actually increase them during a bear market. Available at most book stores, amazon.com, barnesandnoble.com or StreetSmartReport.com.
