Big financial markets fall

Good morning!

Yes, yes, the U.S. financial markets took a big tumble on Thursday.  The DJIA fell 2.6%, its biggest percentage decline since early July of 2009.  While the S&P 500 fell 3.1%, its worst decline since April of 2009.  The big sell off is believed to have been triggered by fears that some of the smaller nations in Europe that are a part of the Eurozone may default on their nations’ debts.

Folks, this is not news.  Even going back to last year I said that one of the primary concerns for investors was what was happening in Europe.  I specifically stated that Europe was experiencing a deeper, more profound recession that the U.S.  I have reiterated these claims several times.  So the big selloff yesterday was a welcome letting out of air from a mini-market bubble.  While market valuations have been below peaks, they are still high historically and in the midst of a continuing global economic slowdown.  While the U.S. has emerged from recession it was largely due to massive government stimulus finally taking hold and a one-time build up in business inventories.  There has been, and is much to be worried about and I guess a large number of people finally figured that out yesterday.  Geez!

The ironic thing is that these risks have been present in the system for over a year, but now because these issues are finally being priced into the market the likely perception of risk for most people has likely increased.  Well that’s ridiculous.  The economic risks remain the same today as they were two days ago; and the market risk just went down because the valuations of businesses just went down.  What other product, besides stocks (i.e. interests in a business), feels riskier to purchase when the price is lower?  Stocks are cheaper today than two days ago, which means that they are less risky.  The question is, will they get cheaper and consequently, less risky?  Honestly, I don’t know.  Right now it feels like consumers, investors and politicians feel a bit queasy about life right now.  Queasiness can ease or it can lead to vomiting.

I like to buy business interests under several conditions:

• When they are cheap and stocks still are not cheap.
• Cheapness can ensue rapidly when there is a big selloff.  However, I like to buy when my intuition suggests that the queasiness has abated.  Unfortunately, I cannot feel an abating queasiness.
• When a business has demonstrated a sustained ability to create and sell unique products and to manage its competition and details well.  Because of the potential for additional risk pricing – i.e. more big stock market drops – I would be scrutinizing businesses that you like for potential purchase.  And c’mon each of us is the customer of a business we like or knows of an excellent business through our working relationships.  Start there.

Jason

PS – I am headed to NYC to meet with both my publisher and editor.  Exciting stuff.  Trust that I will still be diligently covering your back.