Yesterday the S&P 500 closed February at 735 marginally below its previous cycle low of 741. Not good. The next few days will tell the tale of whether this is a momentary blip that will now trigger a wave of long awaited buying pressure or the beginning of a fresh leg down for the S&P. Emotional responses and opinions here are useless, the price action will speak for itself. Meanwhile the Canadian market (TSX) finished at 8123 so far holding a few hundred points above its prior lows. If we could see the future we would know the date that this market crisis finally ends. It will end one of these days. Markets will eventually go back to gradually climbing a wall of worry. The art of surviving these times is to mentally prepare for various outcomes and be flexible. Lots of cash is key. Without liquidity and cash there can be no ability to capitalize opportunities when they present. And there are lots of opportunities in the offing.

In 2008 Warren Buffett's company posted its largest book value loss ever in its 44-year history at -9.6%. But even more relevant to his shareholders is that the market value of their shares fell 50% over the past year. I included the following chart to 2006 in my book in 2007; here is the updated history from Berkshire Hathaway's 2009 financial summary...   more »

This PBS video clip is a very poignant worm hole into market history and the cycles of investor behaviour that keep repeating. This segment aired in 1997 less than 3 years before that cycle bubble finally popped. 12 years later, investors that tried to buy and hold at every price have suffered all pain and no gain. Watch Betting on the Market.

For those that have lost heavily again in the recent bear market, this may be a pretty painful clip to watch. But the fact is that delusional investor behaviour is the regular recurring cycle with money and markets- throughout time!

Impossible as it may seem today, a few years from now, markets will no doubt be higher, and the same exuberance will begin rearing its ugly head. The question is who will remember the lessons learned this time? Next time someone starts explaining why “this time is different” and the market cycle has been abolished…smile politely and run, run, away.   more »

Ms. Park was a guest Wednesday, February 25 on BNN, The Street with Linda Sims at 8:35am EST. You can watch the clip here.more »

Critical re-test presently underway on the broad market indices. In our work 725-741 is the next critical area on the S&P. We closed just a hair above there today. Price action over the next few days will be key. Sentiment remains extremely pessimistic. There is yet another wave of investor capitulation now underway. Capitulation selling pressure is an awesome force. Babies and bathwater all out. I would not suggest buying here until we get some clarity on the outcome of this re-test either way. Heavy cash weight remains king.   more »

Ms. Park will be a guest on Money Talks with Michael Campbell Saturday on CORUS Radio out of Vancouver. You can listen live on the internet or afterwards at the audio archive by clicking on the link at 9am Pacific time (12pm EST) and scrolling the play bar to 17:20Here is the link.   more »

Lots of buzz this morning about yesterday's breach of the Dow Jones Index closing below its previous November 20 low. Futures are signalling, at least so far, further declines this morning. The S&P 500 is the more significant index in our work and so far it has not had a monthly close through the November low, neither has the TSX. They may well do it though. Meanwhile gold is this morning poised to re-challenge its 2008 peak. We will deal with the evidence as it presents. The art of risk management is to have a method for limiting the downside, and a plan for responding to various scenarios. Panic is not a method. Neither is stubborn insistence on our own hope or predictions.

As I noted earlier this week, the news is unanimously dark, and sentiment is very bleak. Sentiment is bleak because so few people were mentally or financially prepared for this prolonged downturn. Those that are properly prepared have little to no debt, relatively modest living expenses, no margin or levered investments and savings amassed mostly in cash and high quality bonds. Businesses that are prepared have already taken steps to downsize costs and control spending. People that are not prepared are being driven to desperate measures every day just trying to survive and keep a roof over their head. This is not a happy thing to watch; but one of these days things will stop dropping and the long, slow recovery will commence. We can look forward to that day. In the meantime, practical steps and self-control are keys.   more »

Been out of the country for the past week, so a little behind in some writing. No matter where we go on the planet of course, we are always tracking the market. Last week was colourful indeed. Bailout package scraped through. Now we will wait to hear details re the plan expected Wednesday on how to help homeowners get principle reductions on their outstanding mortgages. I think team Obama is on the right track with this theme. Until debt is reduced spending cannot rebound. Even with reductions in debt service payments, spending will be weak for a good long while. And so it should. People bought way too much, and so now they will spend very little for longer than many can imagine. Might as well get used to it. Consumers have come to their senses at last, and there is just no tricking them out of this new wave of frugality. We must just accept it and look for the opportunities this new era will bring.

As for the market, no verdict yet. Weakness last week, but held above the November lows. I note there is plenty of pessimism to go around though. Dark, dark, dark. Maybe this is the darkest before the dawn. Governments of the world are all moving mountains to get the system inflating again. They will be successful one of these days. In the meantime, we continue to guard our capital very carefully. We are recently long a little, but will continue to watch it very closely.

I read two good books this week...   more »

Markets rallied strongly yesterday over the news of more horrible job losses. This was a positive sign. Politicians everywhere are depressed, talking about "depressions". I am reminded of the old adage from Fred Schewd Jr. that when the politicians are all wringing their hands in depression over the recession it is time to start taking your money out of Tbills and start buying equities. "But Danielle the sky is falling. The world is bankrupt. The free world is over." Maybe. But more likely, not. How long will this "bounce" last? No way to know. Given the price thumping of the past 14 months, a retracement rally of 25-30% from here would just get us back to the 200 day moving average on major indices. 25-30% would be good. On top of the now reasonable probabilities for a retracement bounce, yields here are worth holding. A little reward for our risk is always appreciated.

Are the troubles over? Is the coast clear? No. Realists know that the coast is never clear. All we have are relative probabilities. Relative probabilities are starting to favour some risk taking again. Could markets break down again in 2009? Absolutely, the November 2008 lows are the low water mark we will be watching...   more »

Economist Martin Wolfe was warning of the credit crash before it happened. He recently returned from the World Economic Conference in Davos. He talks with Charlie Rose on the state of the world economy, some of the rescue plans underway by governments, and realism about our long, slow recovery back to a new normal. The new normal of the future is back to our grandparents' habits where consumers spend less and save more. But there will be many casualties of the new normal. Lenders, retailers and many other industries and services must adjust to the new normal. Those that have been reliant on over-spending of discretionary income will change course or go bust. We cannot go back to the old ways that blew us up. We not doubt will go back to the old ways eventually but that will be a future generation who will not remember the pain of this time. Our generation is likely to be marked by this experience for a long time. Advance the play guide to 2:26 to start the interview on this clip:

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Ms. Park was a guest this morning, February 3 on BNN, The Street with Micheal Kane at 8:30am. You can watch the clip here.   more »

With January now behind us, we note that it was a particularly negative month, with the S&P down 8.6% and the TSX down 4%. We also note the so called “January effect’ which historically suggests that when the S&P 500 falls over the month of January then it will fall over the course of the year. Since 1969, this correlation has been confirmed 32 out of a possible 39 times, or about 82% of the time. (Mirabaud Strategic)

But we must also note that in 18% of the years this correlation did not hold. A most recent example in our memory was 2003 when the market, having lost 45% over the previous two years, fell in January only to gain 26% by year end.

And now we enter February, which is has historically been second only to September as the worst market month of the year...   more »