If you think negative-reverse-compounding might be a new term to express your investing returns recently, you might be right. Given the plethora of bad things happening to what people believed only a few months ago were such good markets, it’s no wonder people wonder. Just last week we saw the deposal of CEOs, particularly Angelo Mozilo, late of Countryside Financial (NYSE: CFC) and Chuck Prince, former Citigroup (NYSE: C) head honcho. The cliffhanger—or maybe not—is that the FBI, according to a Fortune online report, is rumored to be ready to begin investigating what went on at Countrywide.
And why not? If you are a student of the market—and you might want to be if you trade and invest, as it’s your money you play with—you know that while the turbulent markets and falling stocks make for a troubled trading and investing climate, it is far more historically common than the media reports would have you believe. We’ve had, in no particular order in the fairly recent past, Enron, the Dot.com bubble, “irrational exuberance,” Nasdaq 5,000 (now less than half), the S & L Crisis (and workout), the Crash of ’87 (Program Trading), World Com (Was that Bernie Ebbers on tv again? Now that’s a blast from the past), Adelphi Cable, Dow 14,198 (gee, remember the good old days of six months ago?) and on and on. The markets are always telling—sometimes screaming—their cautionary tales.
Ambac’s (NYSE: ABK) re-capitalization may be shakier than first thought, but should not be a surprise. Thornburg Mortgage (NYSE: TMA) may have skimmed close to one too many margin calls, but that shouldn’t be a surprise either. Why do these things surprise? Market bromides and aphorisms abound, from the Trader’s Almanac to the exchange specialists and investors who’ve been around. Here’s an old saying, not elegant but worth considering for its hidden wisdom: Bad news is like cockroaches, where you see one there are usually more. Lots more.
It’s not conspiratorial, but a sign of vast complexity and inter-connectivity. When Citigroup first showed signs of problems, the facile reassurances that everything would be okay rang false at best. Several write-downs later, the stock is still hitting new lows (is this a $10 stock?) and Jim Rogers, in his last tv appearance on CNBC before he scurried back to Asia said, “Oh yeah, I’m shorting Citigroup and will continue to short it.” Doesn’t mean the man is right, as he’s often a gloomy guy on the American markets, but it should have made you sit up and listen at least. Look at his record.
When the first subprime news came out, it wasn’t unreasonable to suggest that it was the end of the ‘then’ current bull market. To think that subprime damage would be confined to a few non-doc mortgages in kooky California, or that a couple of ARMs were going bad, was not only folly, it was putting people needlessly in financial harm’s way. The markets are highly-strung in this globally knit-together world, so even when credit markets go partially bad, the tectonic shifts are felt underneath everywhere, including of course at Citigroup, not just some small mortgage bank somewhere in Iowa. And Citi is not just another bank. One needs to see and feel the connections at all times to understand investing and to protect capital.
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