Since July 22nd the S&P 500 has fallen 225 points.  That is only 11 trading days!  Standard and Poors grew a set and downgraded the US credit rating.  This caused ripples itself through the global markets.  Asia opened in red, then Europe averaged down 5% in Germany and France; and finally US markets ended down 6%.  Ouch, that wiped out a bunch of global market capitalization in one 24 hour period.   Bank of America gets rocked 20%.

People are talking of this feeling like 2008-2009 mega bear market.  Personally, I do not think we will have a repeat at least not in the US.  The bigger financial issue is coming from across the pond in Europe.  Greece already defaulted which caused private banks to need to pitch in Euros to help the IMF.  Italy is about to default which will be an even bigger hit to the IMF and banks.  Spain and Portugal both had their debt get crushed today which is saying they are next.  Eventually, someone will run out of money and have to sell their assets, because the Euro zone doesn’t have the ability to print money like the US.  Germany will only be able to hold up for so long backing the rest of the Union.  That is the biggest negative in the market.  That is exactly why I have said the best short is the European Banks, they really are taking a hit on both sides right now.  They were down 7-9% today which made the day a bit less painful.  Also, the volatility index spike 50% today to hit 48 which is hasn’t been done since 2009.  I have been saying over and over to buy it over the summer on down days starting in May at 16.  It now sits at 48 and I should be able to sell them next week for a decent return.   I hope everyone learns the importance of hedging in markets.  It makes life much less stressful!

Bank of America now is an interesting play.  When the stock was at $10, I thought it could go to $8.  Now after today’s fall it is at $6.40.  Wow!  AIG came out and said they are going to sue the bank for 10 billion dollars on top of concern the company will need to raise cash.  I find this hard to believe.  We are not having the same credit issues in the United States that we did in 2008.  This stock is closer to its 2009 low of $2 than its high of nearly $20 between then and now.  It is now time to wade into this name.  Are we at the bottom, not sure, but I do not care.  I do not feel this stock can go that much further.  If pre-market opens below $6 time to initiate a position.

Long story short, I feel this market is overdone to the down side.  Yes, Europe could fall apart, but the rest of the world is not.  Credit has not tightened up like it was in 2008 which was the true issue in the markets.  Corporations are making money and have a bunch of cash sitting on their balance sheets.  There are plenty of great names out there in many sectors.  Look for companies that are tied to emerging markets.  That is where the growth is, and they do not use the word recession or double dip!  Caterpillar, Cummins, miners Freeport, Southern Copper, and Walter Energy all have been hammered and all have at least a 2% dividend with some higher.  SCCO is over 8% now.  Yield is definitely the key to picking where to buy as well.   High yielding stocks are also great places to dip your toe into the bloody waters if you are nervous.  Utilities like Con Ed and Duke are at dividends of 5 and 6% respectively.  Oil and Gas MLPs are another good place to hide.  Enterprise Product Partners and Kinder Morgan are the best of breed and they now have yields of near 7%.  Even AT&Tand Altria are looking good with their nearly 7% yield.

I am not going to say this is the bottom, but it also is not 2008-2009.  Credit is not nearly as bad.  Prices at the pump will start to fall quickly in the next week which will add some money in the consumer’s pockets and emerging markets are still strong.  The biggest problem right now is not the US getting downgraded by S&P but intstead the debt contagion in Europe.  That is going to reshape the European continent, but I personally do not think it will take us down as far as the market is acting like.

Good luck out there, and remember to never buy all at once, that allows you to buy more if we still have a bit farther to go.  No one can call the bottom every time.

Cheers,

Vinny

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