February 24, 2009
Short the U S of A?
Financial markets shuddered Monday with the Dow Jones Industrial Average falling 3.4% to 7114.78 -- or nearly half the peak it hit just 16 months ago -- even as the Obama administration tried to quell fears about the viability of major U.S. banks.The decline in the stock market was unusually broad and went well beyond the jittery financial sector, with technology and other economically sensitive categories driving major indexes to their lowest closing levels in more than 11 years.
Much as I love to study sophisticated investment vehicles and absorb wisdom from Kudlow guests, I have to admit to being the dullest, old-lady, dollar-averaging, broad-index investor on the planet. My 401K choices are a bit limited, so I do ETFs for S&P500, S&P600, and a non-aggressive international fund. For my wife's IRA, we invest lump sum once per year and can choose any investment except rare guitars (there's probably an ETF, I shouldn't jest.) So I get a little more colorful there. My big idea last year was to go heavy on Financials -- how much worse could they go? Oh. That much.
On one hand, I am a Kudlowite optimist. The dynamic free market engine of world prosperity will win in the end and a long term bet against America is not historically wise. The other hand sees protectionism, überregulation, preternaturally progressive taxes on income, investment and capital -- all in the midst of a downturn that cries for the exact opposite.
I'm thinking of going short with half this year's contribution and putting half in Taleb's Black Swan fund. A little hedge against a further downturn that seems quite possible. I would love to hear what ThreeSourcers think. How bad is it gonna get and what to do?
UPDATE: The editorial page is a little less kind, invoking Casey Stengel's "Can't anybody play this game?"
The latest example came yesterday, when equity markets showed early strength after a dreadful week when they had fallen nearly 6%. Then investors started to absorb a three-paragraph morning statement from five branches of the Obama financial regulatory team asserting that the government "stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses." Stocks headed south around 10 a.m. and didn't stop until they'd lost another 3.4% or so. The nearby chart of the Dow since Election Day is a running tally of ebbing confidence in the new Administration.
Economics and Markets Posted by John Kranz at February 24, 2009 10:26 AM