Bo McFarland's Profile

Oddly, the tracking poll analogy may be a good one. It is unwise for investors or politicians to pay heed to extreme moves from day to day. But the overall trend should send a clear message – the market has twice panicked when the Treasury has raised its hopes on a policy for the banks and then lowered them. That stocks are barely higher now than in the November panic implies that the new administration has not won the market’s confidence when it comes to the banks and that it needs to do so before stocks can recover.

Beyond that, this month’s sell-off was driven by very bad economic data, and by the divisive political debate.

And ironically, Obama’s mangled advice was not at all bad. Valuations are indeed getting to the point where, historically, stocks have been a good buy, for those who can wait a while. Cyclical price/earnings ratios are not as low as they have gone at the bottom of history’s great bear markets, but are at levels that typically lead to good returns over the ensuing decade.

Investors should also follow Obama’s advice and ignore day-to-day gyrations. Extreme volatility is common in bear markets, while day-to-day swings are driven by raw emotion rather than rationalit

WEEKEND INVESTOR
Credit crisis eases in some markets
But why is the economy a basket case a year after Bear Stearns takeover?
By Laura Mandaro, MarketWatch
Last update: 10:52 a.m. EDT March 16, 2009
SAN FRANCISCO (MarketWatch) -- After unveiling one plan after another to fix the seized-up credit markets, the Federal Reserve can claim some success in reviving lending for key groups of borrowers.
It can't say the same of meeting its overriding goal -- restarting economic growth.
Video: 3/16/09: Bernanke Optimistic
Fed Chairman Ben Bernanke says the government has avoided what could have become another Great Depression -- positive comments that could result in a fifth straight day of gains. Plus, stocks to watch and what's ahead on the data front. Dow Jones Newswires' Andrew Dowell reports before the bell.
Loosening up the commercial-paper market has allowed big companies like General Electric Co. (GE
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GE) to sell bonds. Lending dollar-based funds to foreign central banks probably helped drive down the benchmark rate for many mortgages and commercial loans. And intervention in money-market mutual funds likely prevented a financial shock from turning into catastrophe.
"All the programs have been successful to some degree," said Joseph Abate, money market analyst at Barclays Capital.
Some of the Fed's earliest special liquidity programs, such as expanding swap lines to foreign banks, simply built on old programs.
But one year ago this week, when it guaranteed J.P. Morgan's takeover of Bear Stearns to stave off global financial chaos, the Fed embarked on a series of unprecedented interventions into private capital markets.
That marked the first and highly controversial step of lending money to broker-dealers from its discount window, putting them on similar footing with commercial banks. And over the next year, it repeat

2 Dec 2005
Making the cell phone part of a multi-channel marketing strategy, two companies are launching a service that lets retailers deliver mobile text coupons that can be redeemed in stores or online, writes InternetRetailer. Communications technology company Twelve Horses and Mobile Technology Group said the coupon service is being deployed in Europe and is being considered by two U.S. apparel retailers and a music merchant. The cell phone coupons are intended for consumers who opt in to receive them after shopping at a merchant.

“The bond market is getting more scared every day,” said Gary Austin of PDR Advisors in Charlotte, North Carolina, who manages $450 million in fixed-income securities. “At some time, the government is going to say enough is enough, the only way we will give you more cash is if the bondholders have to be hit.”

Debt investors are an attractive target because of the size of their holdings -- more than $1 trillion just at the four largest U.S. banks -- and because they’ve emerged almost unscathed so far. Since any reduction in debt at a bank helps boost capital ratios, members of Congress including U.S. Representative Brad Sherman, a California Democrat, say it’s time for bondholders to share the pain.

This has happened only three times in US history, and can be expected to happen only once or at most twice in a lifetime. Previous instances, according to Rob Arnott of Research Affiliates, were from 1929 to 1932 (when the fall in real terms was 83 per cent), from 1852 to 1857 (a fall of 66 per cent compared with inflation) and from 1905 to 1921 (a 65 per cent fall).

So another 15 per cent fall from yesterday's opening levels would make this the second worst overall decline ever, second only to the Great Crash of the 1930s.

This may not do that much damage to the notion that stocks are the best investments for the long term. In terms of a human lifespan, nine years is not that long.

But it gets worse. When compared with bonds, Arnott points out in a forthcoming piece for the Journal of Indexes that US stocks have now underperformed Treasury bonds since 1969. Very few savers actively putting money away today started much before 1969. Most of them did so during a period when the cult of the equity held sway. For this whole generation, that belief in equities has proved badly misplaced. Various long-term surveys show that there have been very long periods of underperformance by equities in the past.

But we can say that the current sell-off is almost without precedent for its speed. Arnott's figures show that as Wall Street opened yesterday it was already dealing with the second biggest six-month decline in its history. The only bigger six-month drop was barely larger, at 51 per cent, at the end of the crash of 1932.

The good news is that 1932 marked the bottom of the great bear market of the 1930s, and that stocks rallied more than 100 per cent in a matter of weeks.

The bad news is that there were still 22 years to go before stocks regained their highs in nominal terms, and 26 years before they regained their highs in real terms, an event that did not happen until 1958.

All of this could shatter our confidence in stocks as the vehicle for the long run. While the

"Broadening selling without heightened fear suggests that shorting stocks has become more of a proactive strategy than a reflection of forced redemptions and margin calls," said Ashraf Laidi, strategist at CMC Markets.