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Market Watch Global Markets Plummet: What Is To Be Done?
Market Watch Global Markets Plummet: What Is To Be Done? 
Market Watch
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By Chris Johnson Let’s dig a little deeper into the overall retail sector, one of the most beaten down groups on the Street. It's no secret that questions regarding the health of the consumer and the economy have lowered expectations for the holiday shopping season. But has the recent selling marked a short-term bottom in the group? |
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| Global Markets Plummet: What Is To Be Done? |
| Wednesday, 23 January 2008 | ||||||||
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The Dow sank 4.02%, and is now down nearly 9% or 14.6% below its Oct. 9 record close of 14,164. The S&P 500 index dropped 5.41%, its biggest weekly fall since July 2002. With most indexes around the world now more than 20% below their recent highs, signs are that this is not just a correction but the start of a bear market. Global Markets Plummet: The Global Scorecard Drenched in Red InkAlthough U.S. markets were closed for Martin Luther King Jr. Day yesterday, European stock markets had one of their worst days ever on Monday. Britain's benchmark FTSE-100 slumped 5.5%; France's CAC-40 Index tumbled 6.8%; and Germany's blue-chip DAX 30 plunged a whopping 7.2%.Nor was the news any better in Asia overnight. Japan's Nikkei 225 index nose-dived 5.7% -- its biggest percentage drop in nearly 10 years, a day after falling 3.9%. India's benchmark stock index tumbled 7.4% on Monday, its second-biggest percentage drop ever, and followed up with a 4.6% drop last night. China's Shanghai Composite index plunged 5.1% on Monday, and dropped 7.2% overnight, its lowest close since August. Hong Kong's blue-chip Hang Seng, which slumped 5.5% Monday, finished down 8.7% overnight -- both drops were the biggest percentage declines in the market since 9/11. Australia's benchmark index sank 7.1% overnight, the market's steepest one-day slide in nearly 20 years, to extend its losing streak into 12 straight sessions. New Zealand has fallen 13th consecutive days. Just since the start of the year, Japan's Nikkei index has declined almost 22% while Hong Kong's blue-chip index is down almost 27%. China's Shanghai index is down nearly 34% from its all-time closing high on Oct. 16. Global Markets Plummet: Pessimism ExtremeMarkets are driven by either fear or greed. The greed of the last two years has rapidly transformed into fear -- even panic -- during the past few weeks. Although opposites, fear and greed have one thing in common: they are both equally irrational. What's worse is that there seems to be no place to hide. During times of crisis, "diversification" goes out the window. As the old trader's saw observes: "When markets go down, the only thing that goes up is correlation."
So what's the "smart money" doing? My conversations with top London hedge fund managers confirm that the world's top investors are not quite willing to throw the baby out with the bathwater -- just yet. Yes, they are pulling in their horns and diversifying out of stocks. But they are spending most of their time scouring neglected and fringe markets for signs of hidden value. Agriculture is a big favorite. Pergam Finance, a Paris-based hedge fund with $1 billion, is buying farms in Argentina and Uruguay. BlackRock, an investment management firm, has launched a £100 million fund which will invest in agricultural commodity futures and farmland. Global Markets Plummet: Two Ways to Profit From Today's MarketsNo matter how bad things seem, there are always ways to make money in the markets. Here are two things you can do today. First, if you believe the consensus opinion that the world is falling apart, this is your opportunity to make a quick fortune. Markets fall quicker than they rise. Or as traders say: "Bulls climb the stairs, and bears fall out the window." International investment doyen John Templeton made his first, slow fortune as a global value investor. He made his second quick fortune shorting Internet stocks in 1999. And unlike at the time of the dotcom bust, today you can replicate John Templeton's success. Just invest in ETFs that short the Dow, S&P 500 and NASDAQ (DOG, SH, PSQ, respectively). You can even double up your bets by buying ETFs that leverage your bet (DXD, SDS, QID). Second, you can do the opposite. As Warren Buffett puts it: "Sell when others are greedy, and buy when others are fearful." With market pessimism at heights not seen in years, you may think the market may be near its bottom. After yesterday's shenanigans, some stock markets are as cheap as they've been since the 1980s. The U.K. FTSE 100 now trades at a P/E of 12.4 and its earnings yield is an eye-popping 8%. And the bark of the "R word" (recession) is worse than its bite -- at least as far as stock market performance is concerned. In the nine U.S recessions (zero to negative growth) since World War II, in four of those recessions the stock market actually soared: 40% in 1954, 22% in 1961, 30% in 1980, and 30% in 1991. How hard is it -- and how much does it pay -- to go against the consensus? Bill Browder, manager of Russia's largest hedge fund, Hermitage Capital Management, recounted the following story at the London Junto in 2005. The collapse of the Russian market in 1998 so devastated the expatriate community in Moscow, that literally every single one of the other 12 members of his regular poker game pulled up stakes and left the country. Browder was left alone, and his hedge fund's assets under management shrunk to a level where he could barely keep the lights on. Fast forward to 2006, and Browder personally took home a reported $133 million in compensation from the profits of his fund in a single year. I'd suggest that somewhere out there today -- perhaps among the detritus of subprime loans -- there is another Bill Browder saddled with a bunch of seemingly worthless assets who by 2014 will be raking in $100 million. That's a perspective worth keeping over the coming months ahead. Sincerely, Nicholas A. Vardy Editor, The Global Guru P.S. Today more than ever, you can profit from investing in the market, no matter which direction it's going. Just today, I sent my Global Bull Market Alert
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