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Shades of Black Monday
Some thoughts on the market action: I found last Tuesday's market slide, as well as the subsequent action, to be rather ominous. And I wasn't alone in that view. A couple of friends who are astute market observers, with more than 30 years in the business, said Tuesday felt like the Friday before the crash of 1987, as it did for me.On that score, it's worth passing along a point made Wednesday by well-known market watcher and author Justin Mamis: Every time the Fed or Treasury has taken some action since the August 2007 rate cut, it has produced a substantial rally that's run for months or weeks. But Monday's Franron-bailout rally was just a one-day wonder, and the market was walloped the next day. Mamis thinks that was very important. Quoting him directly:
"It makes yesterday's disaster all the more dangerous. They should have followed through, as they had on each of the previous news-related rebounds, but collapsed instead . . . and collapsed not just because of Lehman (LEH, news, msgs); the commodities were even weaker. If there is further follow-through downward today, the selling is likely to accelerate. . . . Of course, they don't have to do it all at once; they don't have to do it this morning or today. But when they do! . . . "
In summing up, Mamis said: "That's a precursor message . . . that there is more selling yet to come."
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I believe we still see so much denial because of the following: The folks whose careers have spanned only the Greenspan era have developed the financial muscle memory that tells them that all crises are to be bought -- because that worked in the past as we built up to the housing bubble. These folks don't know how markets really work or how dire the current situation is.
Mr. Market, I believe, is about to demonstrate that the two decades when Greenspan ran the show taught too many people the wrong lesson. The country is going to spend a long time paying a big price for his (and their) mistakes.
At the time of publication, Bill Fleckenstein did not own shares of any company mentioned in this column.
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