Is There More Selling to Come?

The bears' burly growls continue to rattle the markets. The Dow blew right through the illustrious November lows and now sits at 1997 levels. The months-long sell-off led by banking stocks such as Bank of America (NYSE: BAC  ) , Wells Fargo (NYSE: WFC  ) , and Citigroup (NYSE: C  ) has spread to almost every other sector, helping stocks from Pfizer (NYSE: PFE  ) to ExxonMobil (NYSE: XOM  ) to General Electric (NYSE: GE  ) to swoon.

How much further do we fall from here? Is this a shrewd or scary time to invest? Bill Greiner, chief investment officer for UMB Asset Management and UMB Bank, and chief economist for Scout Investment Advisors weighed in during an interview.

Jennifer Schonberger: After retesting the Nov. 20 lows on the Dow for almost the entire trading week we finally broke through to a new low. How bearish is this signal given that in some ways the Dow is merely a broken index because of its exposure to the financials?

Bill Greiner: It's significant from the standpoint that people look at those things and it tends to influence sentiment and attitude toward the markets. There's nothing magical in my mind about breaking the new low, beyond the sentiment issue. But sentiment is real because basically sentiment is an attitude -- people’s attitudes toward equities and their willingness to take risk. Their willingness to take risk right now is just about zero. So I don't expect the market to start to move back to the upside just due to momentum without that sentiment issue changing.

What needs to happen for the stock market to start gaining traction is an announcement needs to be made that clears the smoke from the battlefield so people can look out at the economic horizon and forecast with some degree of clarity what's going to happen more than 30 or 60 days out. Right now people just can't do that.

To provide an example, if you look back at 1942, people were wondering about the future of democracy. In April of that year Jimmy Doolittle held his raid on Tokyo and a few American bombers bombed Tokyo. The damage was minimal and was more a knock to the Japanese empire at the time. What it did, though, was bolster the American psyche into thinking "we can probably win this war." That day marked the low on the Dow for over the next four years.

Schonberger: Now, is that clarity going to come from the details that will eventually be unveiled for the banking plan?

Greiner: It could be. In fact when [Treasury Secretary Tim] Geithner made his comments a week or two ago, that's exactly what I was looking for -- enough details to where it created clarity regarding the banking system. That could have been the catalyst to get this thing moving back to the upside. So that could happen in the next couple weeks when Geithner makes his announcement.

Schonberger: So until we gain that clarity, is this the beginning of another free fall? Where do we go from here?

Greiner: I doubt it's going to be a free fall because the market is already down close to 50% in value from where it was just a year and a half ago. If you compare this to past bear markets, this market is a vicious bear market and it doesn't have to go down a lot more to fully discount a lot of bad things. I'd be surprised to see another 20% or 30% drop in the market. Could we go down another 400 or 500 points? Very possibly.

... I'm not telling people to go out and buy equities now by any stretch, but the stage seems to be set for the market to start moving to the upside some time later this year. Now it may happen next week, next month, I don't know. But the stage is set. We just need that point of clarity to give us an idea of what lies in front of us. Once that clarity is reached I think we're headed higher.

Schonberger: So would you wait until that point of clarity before putting new money in or pursuing investment opportunities?

Greiner: Absolutely. I would wait for that point of clarity. And when that happens, people are going to recognize it. The market could potentially react violently on the upside over a short period of time.

Schonberger: Given the amount of government intervention that is taking place, is this the beginning of a longer period of time dominated by muted returns in equities given the government's involvement in the markets and the economy?

Greiner: We've gone through a period over the last 12 years where equity returns have in essence been zero. Usually when that happens historically, and we've done a study going back to the 1800s looking for those periods over a 10-year time period where the market yields negative returns, generally speaking the next 12-month period of time the market rises by at least 16%. So over a short-term period of time (12-18 months) my guess is the market rebounds upwards once that clarity point is reached.

Now beyond this transition period that I'm talking about I could see periods where the market is up and down in a trading range like it has been, by the way, for the last 10 years. I don't see anything out there that's going to break that trend. But if we get back up to the old high 14,000, 7,400 is a great buy.

Related Foolishness:

Fool contributor Jennifer Schonberger owns shares of Bank of America (ai caramba!), but does not own shares in any of the other companies mentioned in this article. Pfizer is a Motley Fool Inside Value recommendation, as well as a former Income Investor selection. The Motley Fool owns shares of Pfizer and has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 25, 2009, at 5:15 PM, Seano67 wrote:

    Nice interview, Jennifer.

    I love this point Greiner made:

    "To provide an example, if you look back at 1942, people were wondering about the future of democracy. In April of that year Jimmy Doolittle held his raid on Tokyo and a few American bombers bombed Tokyo. The damage was minimal and was more a knock to the Japanese empire at the time. What it did, though, was bolster the American psyche into thinking "we can probably win this war." That day marked the low on the Dow for over the next four years."

    That is so true. That was a point in American history when we as a nation may have been at our very lowest emotionally. So much fear and doubt, and after the physical and psychic devastation following the attack on Pearl Harbor, we had seemed powerless to do anything punitive against the Empire of Japan. We'd been unable to do *anything*, and morale in America had just sunk through the floor.

    Doolittle and his boys were some of the greatest heroes of the Second World War. They knew they were on a doomed mission, because they only had enough fuel to get to Japan (and then hopefully enough to allow them to be able to safely ditch their planes in China), but a return to their aircraft carrier was completely out of the question.

    All it took was 16 B-25 bombers, an obviously insignificant number capable of only delivering the most symbolic of blows. All 16 planes were lost during the raid, but they made it. They did what they had set out to do, and which many people had thought impossible, they launched a successful carrier-based bombing run against the Japanese homeland. It was a massive turning point for both sides psychologically. Gone were the Japanese feelings of total invincibility, and their belief that a 'divine wind' protected the Japanese home islands at all times...and also gone were the American feelings of despair and hopelessness. It didn't make up for Pearl, but it damn sure was better than nothing, and the heroism of Jimmy and his boys in undertaking that mission really lifted the spirits of this country immensely.

  • Report this Comment On February 25, 2009, at 5:56 PM, ibropin wrote:

    Sir

    I would add that we do not have a common foe to focus on at this point. This country is divided as to who the enemy is and we are all waiting for a jimmy and his boys to step forward and up until now he has not.

  • Report this Comment On February 25, 2009, at 10:14 PM, Seano67 wrote:

    Great stuff. That guy really knows his history, and I love how he incorporates that into the context of what's happening right now. It definitely gives a person added perspective.

  • Report this Comment On February 26, 2009, at 11:10 PM, nicko168 wrote:

    Based on the past weeks of observation, in order to avoid these turmoil crisis, I would suggest the readers to avoid the following companies at the moment:

    1. Banks.

    2. Auto.

    3. Retails.

    4. Casino.

    5. Insurance.

    6. Builders.

    7. Advertising.

    8. Energy.

    9. Healthcare.

    10 Loan.

    11. Chemical.

    12. Credit.

    13. Electric.

    14. Communications.

    15. Semiconductors.

    16. Rental.

    17. Electronics.

    18. Computers.

    19. Software.

    Blah..Blah..Blah."what can I buy?" Ha..Ha....Don't listen to analyst's prediction which does not work in this turmoil but there's an old saying "listen from the horse's mouth"

    After listening to the speech that day which caused the whole stock market to slid to its lowest..."what the heck"..I realised that there's a shift in position to .....just playback the speech & the clue is what's not mentioned & who's already awarded the technology & millitary contract ....Ha...Ha..Catch it?

  • Report this Comment On February 27, 2009, at 12:05 AM, nicko168 wrote:

    Revsied Version:

    Based on the past weeks of observation, in order to avoid these turmoil crisis, I would suggest the readers to avoid the following companies at the moment:

    1. Banks.

    2. Auto.

    3. Retails.

    4. Casino.

    5. Insurance.

    6. Builders.

    7. Advertising.

    8. Energy.

    9. Healthcare.

    10 Loan.

    11. Chemical.

    12. Credit.

    13. Electric.

    14. Communications.

    15. Semiconductors.

    16. Rental.

    17. Electronics.

    18. Computers.

    19. Software.

    20. Estate

    Blah..Blah..Blah."what can I buy?" Ha..Ha....Don't listen to analyst's prediction which does not work in this turmoil but there's an old chinese saying "listen from the horse's mouth". That's the truth!!!

    After listening to the speech that day which caused the whole stock market to slid to its lowest..."what the heck"..I realised that there's a shift in position to .....just playback the speech & the clue is what's not mentioned & who's already awarded the technology & millitary contract ....Ha...Ha..Catch it?

    The market goes opposite direction when the horse can talk....ha..ha..

    This report is free & welcome any comment....

  • Report this Comment On February 27, 2009, at 12:27 AM, meik61 wrote:

    I've seen this message now on several of the posts.

    Interesting the outrage is at the current administration. We are were we are because nobody was watching the store.

    The ultimate irony are several of those that came in and robbed it are now wary of investing in the market.

    People that have worked all their life just to see 10 years of equity taken away by a small bunch of crooks that should be in jail.

    You talk about restoring investor confidence that's a good start for me.

  • Report this Comment On February 27, 2009, at 3:59 AM, jesse2159 wrote:

    Perhaps investor confidence will return once the banks level with investors and tell us exactly what their exposure really is and not more 'predictions" about when the market will turn. The markets and housing might flat line for 10 more years. This is a great time to sit on the sidelines.

    As to Citi being nationalized, America did it today in all but name. Owning 40% of a bank means we own it and the employees run it. In a perfect world Citi would have gone out of business and taken the incompetent nitwits who "managed it" to the unemployment line.

  • Report this Comment On February 28, 2009, at 2:36 AM, nicko168 wrote:

    Based on the past weeks, the stock market has been a place for the guys to rally & show their frustration towards "Robin Hood".So, no matter what stocks u thinking of..forget it....

    Ultimately, do you know who's the real fools? Ha..Ha..

    Real fools are the one who plunge their own economy to zero together with the $787 billion stimulus plan. Why?

    They'll be slapping their own face caused it opens up the opportunities & competition to the "third" world to buy all the "CHEAP" US Companies..Arabi, China, Kuwait & maybe Iran, Iraq etc...

    Based on the recent news, US companies are selling off thier valuable assets (technologies, bank etc) in order to pull through the crisis & who are they selling to? Make a guess....AIG went to China, Singapore etc selling off their stakes..Another is selling their US technologies or commodities caused they're ridden by billions of dollars debt....At the end of the crisis, what will the US companies who once holds the supremacy in technologies, banking etc become? "Zero" is my answer...

    Who the losers? The real losers are the next generation facing the real US....

    There's a old chinese teaching:

    "To break one chopstick is easy..

    To break a bunch of chopstick, is difficult"

    To the real fools, WATCH OUT!!! Ha..Ha...

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 839177, ~/Articles/ArticleHandler.aspx, 9/2/2014 8:18:39 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement