Stocks posted a severe drop today, with the Dow Jones Industrial Average falling 4.3% and the Nasdaq crumbling over 5%.

By the end of the day there were few places left to hide. Gold, silver, crude and yields on Treasuries all fell sharply as traders looked for safety and were met by nothing but falling prices. Over the last 10 trading days stocks have lost more than 10%, the traditional definition of a market correction.

Today's selling started in Europe and picked up steam as American investors, already twitchy in the wake of the debt ceiling debacle, suddenly preferred cash over all other assets. The selling began overseas, but we have more than our share of problems in the U.S. as well.

There's a growing realization among even the most optimistic investors that the United States is entering a new recession -- a dreaded "double-dip." Adding to the pain is the sense that the government and Federal Reserve are out of both ideas and ways to stimulate the economy. Corporate America is sitting on record amounts of cash but is refusing to make new investments with so little end demand for its products. Consumers and corporations are hoarding cash, and the economy appears to be seizing. The debt ceiling debate was a fiasco, snuffing any remaining confidence traders had for help from Washington, D.C.

The bottom line is traders are becoming convinced that we're facing a prolonged and severe recession, and there's nothing any government on Earth can do to stop it. In that context, selling stocks or "reducing exposure" as they say on Wall Street, is quite rational.

So what should people at home do? Avoid panic, for starters. The swiftness of this correction is unusual, but a 10% drop is not. Just last summer stocks fell 17% on concerns not unlike those we face today. If you're an investor who can't sleep tonight, you're probably too exposed to stocks. Sell until you can sleep. Nobody ever made good financial decisions scared or tired.

Today was the first sign of fear stocks have seen in a year. To paraphrase Churchill, that may not be the beginning of the end of the selling, but it's the end of the beginning. It's extremely unlikely we're going to see good economic news anytime soon. A terrible jobs number tomorrow is now assumed, and a good one will be considered either incorrect or flat-out fraudulent.

Take hope for a quick economic recovery out of the equation and ask yourself this: If you woke up tomorrow and stocks were set to open down another 1,000 points on the Dow, would you buy or sell? Whatever your answer is, you'd be well served to consider doing it a little bit at a time now.

Trying to "call the bottom" by going all in at once is a fool's game. Be patient, be calm and tune out the panic. In a market this volatile, prudence is the only rational strategy available.
http://finance.yahoo.com...sell-off-204130841.html


it appears that the efficient market hypothesis is accurate as the US capital market is quickly reflecting what investors expect from the budget cuts after the recent US debt crisis deal. The deal is expected to reduce employment and lead to higher taxes which is in contrast with the keynesian theory that advocates higher government spending to curb economic hardships.

http://issuu.com/mutombi...y_and_the_us_debt_crisis

Jobless numbers, weak manufacturing data, govt.spending cuts,QE are realities and not fears.

The best way to curb a recession is through government expenditure and not through fiscal austerity. Any government that trys to do that is gambling with the lives of its citizens. Look at Greece for example, they still need more funds since fiscal austerity isnt working,infact critics argue that these structural adjusted programs lead to human right violations. Countries like Ireland, Spain, Portugal and Greece will take years to fully repay their debts and recover. If you dont spur economic growth as a government, then the level of unemployment will reduce leading to reduced demand for finished goods and then further unemployment.

actually the bond yield in America signifies higher demand for American bonds. it's their cheap short term dysfunctional politics just like here in Kenya that is killing there economy. President Regan raised the debt ceiling 18 times and the current debt crisis was caused by the previous president during the war on terror yet now the republicans are reluctant to raise it arguing that they should reduce their debt and balance their budgets. No country in the world (maybe China the only growing economy in the world right now)can afford a balance budget because of the recession.

Furthermore, the relevance of the USD as a global reserve ccy is already in question. That should tell us something. There is no better place to be invested now than Sub-Saharan Afrika, less SA!! The BRICs will have sme problems as they do a lot of exports into the now receding US & EUROPE.

It has been concured that this opens up a buying opportunity for blue chips.
Please do not ask me the bottom as I am not a stocks prophet I only know that the current valuations are close to bottom and most are below 52 week low.
I recommend blue chips because they recover more quickly when the market stabilises.


http://www.bloomberg.com...an-holdings-suffer.html

Its the most wonderful time of the year...!!!! Double dip recession here we go, or even possibly a depression, the only con to a depression is I along with millions other may lose our jobs, but since stocks will practically be given for free, I'm game, I will survive on rice and beans even sleep in my car if I have to as long as I can buy buy buy. Brian wrote "Sell until you can sleep" very wrong, you only lose money if you sell in a bear market. Remember bulls make money, bears make money, pigs get slaughtered!!
Great analysis Brian but I see you are an Efficient Market type of guy, I'm a Warren Buffet type of gal, and trust me EMT stands no chance against Buffett. I am so glad I sold off my holdings 3 weeks ago, please God guide me through these murky waters.
Brian wrote "If you dont spur economic growth as a government, then the level of unemployment will reduce leading to reduced demand for finished goods and then further unemployment." Did you mean the level of unemployment will increase not reduce?? By the way for those worried about increase in interest rates, there is no way Bernanke will raise rates in a recession, look for him to reduce rates even further. So the markets survived today, atleast so far, but I see doom and gloom ahead. Buy buy buy.
CDE, you are waiting for the 8th year of recession to buy, so is that 2015??? Chelewa chelewa utakuta mwana si wako

No he didnt, but I dont have his kind of cash. Therefore I sell at the top of the market, so I have enough funds to buy when the market crashes since the market is cyclical. I am well aware that you cant time the market.

@Nabwire I will be making better and more certain returns in SSA. I have no business investing in the US less than 80% through the recession so that we can be together in mourning. Hii si ndoa mrembo, its business.