The market delivered a resounding vote of "no confidence" this week. Obama signed the spending bill on Tuesday, and the market did not respond with any enthusiasm. As I write this, the Dow Jones Industrial Average is down 5.8% for the week. For the past fifteen minutes, however, it has been struggling to end the day on a positive note.
The spending bill (note that I'm not calling it the "stimulus") is just that: government spending. As we reviewed a synopsis of the provisions, we could not help shaking our heads in dismay. It really is just a laundry list of items on which some segments in the government have wanted to spend money for years. They just needed an excuse to push things through, and what better than "economic stimulus"? Adding billions, perhaps trillions of dollars to the expenditure side of the government budget in the name of "stimulus" is not prudent management of our money. There is a very real cost to this plan.
This week's market decline is not solely attributable to the spending bill. There is a cloud of fear hanging over the market that the government is going to nationalize one or more of the big banks. If that occurs, expect a very distraught stock market. Nationalization is essentially the government taking ownership out of the hands of individuals - equity will be wiped out, the value owned by shareholders will become zero.
The market continues to sort out the realities of the current economic environment. The activity in the market this week did not look to me like a panic sell off, but rather just a lack of interest on the part of buyers. Remember, for every person selling a stock, someone else has to take the position of the buyer. When buyers are hesitant, prices come down, and continue to fall until they are low enough to spark interest. We started getting more interested earlier in the week, and began a little bit of targeted buying. As we see opportunities, we will continue to increase equity exposure in a calculated manner. Stocks look cheap, but volatility will be with us for a while.
