We are beginning to see the first signs of some real panic in the market. Not the kind of fear that creates a tradeable bottom (though we’re close), but fear nonetheless. This market has been a lot like a group of little kids running around with sticks of dynamite in a closed room. Every few months dad (the government) comes into the room and tells the kids (investors) to stop running with the dynamite (they implement plans, but don’t defuse the problem). Well, the kids are up and running around again and we’re beginning to get that panicky feeling again – like something might explode. I have a feeling dad is about to walk into the room and tell the kids to stop screaming and running, and of course, fail to defuse to dynamite. What will they do? I have a few ideas:
1) Mark to market remains the go-to issue. The government has this one in their back pocket in case of a rainy day. Unfortunately, it will do nothing.
2) Issue a “no nationalization” statement. The bank stocks and the broad market will likely spike on such an announcement before realizing that this just avoids the issue.
3) Nationalization. The bank stocks will tank, but the broader market will likely rally after an initial hiccup.
We’re definitely reaching a pivotal moment here. It’s time for the government to step up and make some broad moves. Moves that destroy those who made mistakes. Unfortunately, nationalization does not end the problems in the stock market.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.