Thursday, November 8, 2007

Sentiment and Emotion Trading

It was a pretty strong sell off in the afternoon yesterday. But lets take a look at what we've got. We know these big banks were having problems, and it shouldn't come as a surprise that they are writing down a lot of bad debt. Its better that they announce them together, so the market can understand how to re-price them, based on risk.

The problem with the policy of the Fed is that every time we get a sell of like this, everyone looks straight to Bernanke. I mean, what do you expect him to do? The Fed has created this feeling of a cushion for investors that if anything goes wrong, we'll bail you out, no matter what the long term costs are. Bernanke is giving a speech today, and I can guarantee there is a handful of headlines saying, the market will wait to see what he says. We've heard from him, and things haven't changed that much.

Emotion created most of what happened yesterday. Greed and Fear. I'm not saying the market can't drop further, but I'm looking for opportunities to buy good stocks and funds. The overall sentiment in the media is way too negative. If they keep predicting a recession, its going to be a lot harder for one to happen. So in this case, we have to learn to think like most of them aren't. Look at fundamentals. There has been some fairly positive economic data that has come out that has been completely ignored. If the news from the banks settle down a bit, I don't see any reason stock can't rally into the end of the year.

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