The markets opened weaker this morning as the world awaited the vote in Washington. As the vote was being tallied, it became clear that it was not going to pass. The markets rapidly sold off, falling over 700 points, but the slide quickly reversed as discussion turned to whether or not that meant the deal was dead. Well, for now, it looks like the deal is off the table.
The financial rescue plan is a needed measure to provide some breathing room to financial services companies. Contrary to popular opinion, this is not about rich Wall Street bankers getting richer, or even saving them. It's about bringing stability to a credit system that is on the verge of collapse. As things stand currently, credit has virtually dried up. Banks are not lending anyone, especially other banks. Consequently, business and personal lending through large banks has become pretty much non-existent.
The news was not taken well in the markets. At the end of the day, the Dow was down 778 points, the S&P 500 was off 8.79%, and the NASDAQ Composite lost 9.14%.
I was asked by a client earlier today "what, if anything, should we be considering as our next move?" With the market taking a hit like this, we have to revisit the fundamentals of our holdings. We sometimes hear "experts" saying that in volatile times that the fundamentals don't matter. We believe that in volatile times the fundamentals matter the most. Just because a stock has fallen doesn't mean it's a good deal, and by contrast just because the stock's price has held up doesn't mean we want to continue to hold it. In fact, we removed one of our core holdings from portfolios today. The company is one that's well positioned, but was fully priced and vulnerable to the downturn. We had good gains in the holding, and we wanted to protect those gains, lessen exposure, and raise cash with which to purchase other assets. So we sold the stock, and we're now looking for something with which to replace it.
We are going to see continued volatility as the uncertainty surrounding any financial services plan remains heightened. This volatility will change direction at some point, and gains will be made. In the meantime, we continue to manage the risks as we see them.
If you have questions, please feel free to e-mail us.
