And if P/E has so much to do with the market, then WHY is the WHOLE market tanking? Especialy companies that are fundamentaly strong?

Explain to me, with your College given knowledge, how the stock market can lose 40% of its worth, when the VAST majority of companies that make it up are NOT going out of business, or even loosing money?

Its become Vegas… and its based on whether you bet correctly on the money flow in and out of the market…

Romeo13 on October 10, 2008 at 4:57 PM

They aren’t fundamentally strong. Our Federal Reserve has pumped up our economy with cheap credit and now all the asset prices that reached the sky will have to come down to a place where they have historically corresponded to income.

I have been saying this on this blog for so long but I will say it again. Easy money will ruin the US. Our economy is weak and we need a period of detox and no bailout will make any damn difference other than to maybe ease the pain and, of course, prolong the recovery. (See Japan.)

Strassel nails it.

johnnyU on October 10, 2008 at 4:19 PM

I hope you’re right.

kareyk on October 10, 2008 at 4:27 PM

It isn’t. Now the economy will catch up with the stock market.

Is it time to get the Stock market back to its origional intention, by instituting a Rule that once you buy a stock, you have to own it for at least 24 hours? And get rid of the short selling type of betting going on?

Romeo13 on October 10, 2008 at 4:28 PM

Bad idea. You would get rid of people who make markets in stocks. The market makers bid and offer hoping to make the difference between the the bid and offer-known as the spread. They are the ones that provide liquidity and who, therefore, keep volatility down. Decimalization has forced a lot of market makers out of the business and you have seen an increase in volatility.

Even the mortgage-based securities are not totally worthless–many of the mortgages in them are actually GOOD mortgages (people making their payments), and even a bad mortgage is still secured by a house, which could be sold at foreclosure. It will take time to sort this out, but this looks more like 1987 than 1929. In 1987, the market dropped about 30% in a week, but had rebounded within a year.

Except, of course, if Obambi gets elected, and pushes the New Socialist New Deal through Congress, taxing the h*ll out of everything, nationalizing health care, cutting energy supplies, and leaving no room for growth. Which is why McCain has to clearly state the case that the subprime loan mess is the Democrats’ fault, and that he is the man who can fix it.

Csdeven – This whole mess has been the government’s fault. Stay with me here: the mortgage-backed securities, many of them backed by Fannie & Freddie, that are killing the market (thanks to ACORN and the democrats). They were graded as safe investments by Standard & Poor’s, Moody’s, and other ratings agencies that are approved by the government. It’s all based on a fundamental misunderstanding of the value of these securities, thanks to the ratings agencies. The institutions that bought these are unfortunately holding the bag, misunderstanding the damage that could be done to their balance sheets.

Electric-rascal – Naked shorts are not allowed, but it’s very hard to track that with millions (8 billion yesterday) of shares being traded daily. People get caught doing it EVERYDAY. I’m not advocating shorting every company til they go broke, I do it occasionally when I see companies making mistakes.

Whew! I still say the USA will bounce back, as we have the best and most resilient economy on Earth.

Your comment about short sellers “betting” on the up/down movement of a stock evidences your lack of knowledge on the subject. Short sellers are, by definition, thinking that the stock will go down.

FLcapitalistthug on October 10, 2008 at 5:15 PM

Yea, but massive shorting also helps make the stock go down – it would be like being able to continuously bet BLACK on the roulette wheel, which would modify the wheel to cause BLACK to come up more often.

Shorting, with some limits in place, is OK, but permit a free-for-all?

Why did they do away with the “you can only short on an uptick” rule? Why are people still allowed to do naked shorts even though it’s supposed to be a prohibited practice? Somebody (the politicians) wanted to favor the snatch-n-grab gamblers, that’s why, and it stinks.

If shorting is so great, why not just keep shorting a stock until it reaches zero, then move on to the next company and start shorting it?

and leave the investing up to the ones that think finance is a rational industry, rather than the plaything of the rich.

FLcapitalistthug on October 10, 2008 at 5:39 PM

I’m having a hard time squaring that with the reality of the the bankruptcies of many iconic institutions. The more we find out, the less likely it is that these people are rational.

Good luck in Caesars Palace the NYSE.

FLcapitalistthug on October 10, 2008 at 5:39 PM

Dude, I am NOT the one who started the personal crap…

And I might add YOU accused me of not understanding what short sellers do… so now defending myself is considered being smug? Interesting…

And Good luck to you in you Office, as the portfolio managers continue to play in Vegas WallStreet with OPM (other peoples money).

Being told by an Insider, someone who makes a living off the market, that everything is Fine, is like the Capt. of the Titanic bragging about his unsinkable ship….

Good luck in Caesars Palace the NYSE.

There’s no need to be reproachful about my “college given knowledge”, perhaps you were too busy balancing your afternoon shift at Pacific Sunwear and community college classes to finish college, both of which aren’t my fault.

FLcapitalistthug on October 10, 2008 at 5:15 PM

Sorry dude… have a Bachelors myself… so your shot goes VERY wide of the mark… but then again, I went BACK to College after Retiring from the Navy, so I guess I wasn’t so much with Pacific Sunwear, as in the Pacific FLEET back then…

But please continue with your personal attacks, they are very amusing.

And my comment on short sellers show that I DO understand what they do, you are just looking for fault. A Short seller makes money on the down, not on the up… so they are betting on whether the stock goes up or down. Up they loose, down they win, thats the bet.

Oh, and just as an aside… I’ve never been to Newark, just around the world… TWICE… 6 out of 7 Continents…5 out of 7 Seas…. but please, continue your snark… as I said earlier… its amusing.

The market fluctuations are unprecedented. By and large, the companies that have struggled are FUNDAMENTALLY HURTING. Case in point: GM, the worst performing DJIA component since last year, is in serious, serious trouble.
Their sales are projected to fall 25% in the next year.

I never said P/E is the reason why companies’ stocks do well or not. It’s a good indicator, but not the be-all end-all. Balance sheet health is a much better indicator of how the stock will perform in the future.

There’s no need to be reproachful about my “college given knowledge”, perhaps you were too busy balancing your afternoon shift at Pacific Sunwear and community college classes to finish college, both of which aren’t my fault.

The market has lost 40% because IT MAKES SENSE. Call Sens. Dodd, Schumer, et al. about why these toxic mortgages have become a cancer in our economy. Consumer spending is 2/3 of the American economy, thus it’s significantly affected when home values and bank balance sheets depreciate how they have.

Your comment about short sellers “betting” on the up/down movement of a stock evidences your lack of knowledge on the subject. Short sellers are, by definition, thinking that the stock will go down. I have shorted stocks for companies which I generally like, but have made bad moves and which I can make profits for my clients.

Keep thinking stocks are like Vegas and you will be vacationing in Newark, NJ for the rest of your life.

Well, I hope others are felling like we’re near a bottom too… I actually bought today, myself.

RightWinged on October 10, 2008 at 3:41 PM

Yeah. I seem to be thinking right too…..up 70% on a few experimental plays. Just dipping my toe in to get a taste.

I disagree. Short sellers are a hint to management that they are on the wrong track. Buying and selling, no matter how long or short term, is about the only unfettered capitalism we have left. Buy and hold, don’t speculate, and you won’t get burned.

Vashta.Nerada on October 10, 2008 at 4:38 PM

Sorry, but any CEO who runs their company based on the short term gains and losses of their stock, instead of business fundamentals, should be tossed out on their ears.

Short sellers don’t give a crap about how good the company is doing, its all about the up/down bet… just like betting Red and Black at Roulette.

FLcapitalistthug on October 10, 2008 at 4:38 PM

Really? then please explain to me how todays market fluctuations happend?

And if P/E has so much to do with the market, then WHY is the WHOLE market tanking? Especialy companies that are fundamentaly strong?

Explain to me, with your College given knowledge, how the stock market can lose 40% of its worth, when the VAST majority of companies that make it up are NOT going out of business, or even loosing money?

Its become Vegas… and its based on whether you bet correctly on the money flow in and out of the market…

I did great on banks today. I have lost so much in last year I think I have ice water in my veins now. There is an ebb and flow to the market and somehow, you have to believe that stocks will rally back. During the downturn today, I was buying as fast as I could. Small amounts, but bringing my average costs down.

Now I just have to hope nothing bad happens over the weekend.