Are We There Yet?

Thanks to those of you who pointed out that Dick Armey is House – not Senate — Majority Leader. I actually knew that. (The House is the one with the 435 members, right? I’m constantly getting them confused. If the Senate is the more elite body, how come some states have more senators than representatives – and can you name them?)

It was Dick Armey who told everyone Sunday to put money into the stock market, ‘because it has no place to go but up.’ And every additional 3% the market falls, as yesterday, the closer he gets to being right. I don’t know where we will bottom (and in truth, different segments of the market will bottom at different times). I do think some stocks are becoming attractive for the long run. But for the short run, there’s another issue to contend with – tax-selling. That stock that’s down from $18 to $4 this year? It’s going to be awfully tempting to sell it for a tax loss as the year winds down.

But the real problem for stocks is that people have, quite sensibly, become more show-me oriented. A company is losing money? Where before that might have been brushed aside as a detail, now people are wondering, ‘Why am I buying a company that’s losing money?’

That blue chip that’s weathered the storm so nicely, down just a little? Even it may become vulnerable as people sell it to raise the cash needed to buy what they view as other even more compelling values – stocks that have been beaten down past all reason (although I don’t think many stocks are yet at the past-all-reason stage). So even the solid stocks can get hit hard in a market like this.

Are we there yet? Maybe. With interest rates low, there’s a case to be made for high price-earnings ratios and higher stock prices. But low interest rates don’t always spell economic or stock market success – look at Japan. So we may have a ways left to go.