Is This What A Stock Market Bottom Feels Like?

The world’s largest insurance company is on the ropes. Blue chip investment firms are closing shop. Banks are lying in financial ruin. The world is on the brink of a global depression.

There is bad news everywhere, and not a lot of light in this tunnel. This is beginning to look like a stock market bottom to me.

The stock market is a reflection of the human condition. Humans have lots of great qualities and many flaws. We are a noble and complex creature.

So, too, is the market. The stock market reacts in the same erratic, irrational and nonsensical way that we all do. It goes up when things seem bleak. It falls when all the news is rosy.

I am not saying that the stock market is at its bottom. No one can know for sure until it has already occurred. I do know this. Global market capitalization has fallen by about $15 trillion dollars. Yes. Trillion. Global wealth has fallen by much more, as real estate values have plummeted around the globe.

From what I can discern, there was something like $30 trillion borrowed against $1 trillion in mortgage assets. I have always suspected that the stated values of the mortgage pieces sold into the market, when aggregated, overstated values by about 100%. So, a $15 trillion loss, just about brings us to ground zero. I know, the value of GE stock has little to do with a CDO held by AIG or the Chinese government. But, in a way, it does.

Stock market values became overinflated because earnings became overinflated. Wall street firms, banks and hedge funds were showing paper profits based on theoretical value increases in “now-worthless” securities. They were also showing up on company balance sheets as appreciating assets. We are no longer seeing these earnings. Companies are writing down the value of these securities on their balance sheets. Things are getting back to normal.

A 30% decline in global market capitalization has historically proven to be a good time to buy, rather than a good time to sell. Investors who have been able to hold their breath, close their eyes and jump, have historically been rewarded for such intrepidness.

I do not know if the stock market has hit bottom. Maybe we are heading toward a global depression that will take a decade to fix. All I can say is, in my 30+ years of following the stock market, this feels a heck of a lot more like a buying opportunity than a selling one.

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