The Smell Of Fear Is In The Air

The Smell of Fear Is In The Air

by Lou Scatigna

For the last 26 years I have been spending a good portion of every buisness day watching financial markets. Most of that 26 years I witnessed mostly rising stock prices and a growing national and worldwide economy. I was 27 when I opened up my own financial adivisory firm in October of 1987. Two weeks after I opened my doors the stock market had it's worst day in history falling 22% in a single day. I remember the fear and panic on that day. Although the days surrounding the crash were indeed fearful, the panic only lasted a few days and the stock market resumed it's bull run and the U.S. economy proved that it was resilient.

The technology led bull market of the late 90s was perhaps the best time to be an investor as well as a financial advisor. Stocks rose to unbelievable heights and many investors prospered greatly. The economy enjoyed full employment and credit was plentiful. The party came to end in 2000 and the market had a brutal sell-off with the Dow down 40% and the tech heavy Nasdaq down over 75% by late 2002. Although the decline was brutal in percent terms, it happened over a protracted period of time. Investors had more than enough time to exit equity positions and take profits. Thankfully, I had warned our clients and radio listeners to exit the stock market in 2000 and move to the safety of bonds.

The current bear market is the most serious one I have ever witnessed. Stock market indexes are down over 50% in just 15 months. Venerable blue chip stocks have dropped even more and names like Bear Stearns, Lehman Brothers, Wachovia, and Washington Mutual have imploded. The wealth lost in such a short amout of time is staggering.

There is a feeling of hopelessness among the masses as job losses accelarate and housing prices plunge. Faith in Wall Street and Washington is at an all time low. Government is throwing trillions of dollars in bailouts of banks, brokers, homeowners and the auto industry.

This week has the worst week in the financial crisis in my opinion. Although the market had worse losses this past October, it felt more dire this week. This week I smelled fear in the air. Bank and insurance stocks crashed late this week as talk of nationalization dominated the financial media. The stock market fell over 300 points on tuesday as the market voted on the effectiveness of the massive stimulus bill, the competency of Treasury Secretary Tim Geithner and socialist nature of the mortgage modification program. The stock market ius down 16% this year. People are getting angry and there is an undertone of revolt among the people. Class warfare and civil unrest seems to be inevitable.

During Friday afternoon bank stocks were falling like a rock as investors panicked amid nationalization talk. Citigroup was trading at 1.58, Bank of America traded as low as 2.58 and General Electric was trading near 9. The Dow closed at a new bear market low and looks like it will go much lower. I was witnessing the death of American capitalism and I felt a fear that I have not felt in my entire career. We are now entering the most critical phase of the financial crisis.

Gold, the ultimate fear indicator soared this week as investors ran for protection, closing over $1,000 an ounce. I have a bad feeling about the coming week. Geithner will announce details of his plan to save the banking system, let's hope he has an effective plan. I'm afraid that the government may be forced to declare a bank holiday, if they do there will be panic in the streets. The smell of fear is in the air.