No Pain, No Gain
Wednesday, October 29th, 2008
By George Leong, B.Comm. for Profit Confidential
We are in the midst of a nasty and devastating bear market, with major U.S. indices down as much as 42% this year. Where it will end is still uncertain, as a firm bottom has yet to be established. In fact, we are witnessing a global slump. Bear markets are in Canada, Asia, Europe, and other emerging markets. Chinese markets are down over 70% since October. The Nikkei index in Japan just fell to a 26-year low.
The story will eventually have a happy ending, but not before we go through more pain. Isn’t there a saying, “No pain, no gain?” That is clearly the case here.
Despite trillions of dollars of funds injected into the global financial system, to keep the credit lines flowing, we are not convinced it will be enough to avoid a global slowdown. The credit and financial crisis started the recent streak of intense volatility and selling, but investors are also faced with the increased probability of a global recession, which will translate into lower demand and manufacturing output worldwide. The recent dismal outlook from the International Monetary Fund (IMF) points to a slowdown. The IMF warned of a major downturn for global economies, with growth plummeting to levels not seen since the 2001-2002 recession.
At this time, the threat of a global recession is capping any gains or chance of a sustainable rally. The prediction of global slowing was not what investors wanted to hear, but it was expected, which could cap any market recovery in the near to midterm.
In the meantime, I continue to expect stocks to trade on headlines with high intraday volatility. It will not be easy to make money in this market, but there will be opportunities when stocks sink. The key is prudence and making sure you only use risk capital for the more speculative stocks.
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Tags: bear market, financial crisis
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
