By Rick Glaze
No sooner did I take a summer break from this column than the stock market fell out of bed. The June quarter ended with the large company index, the S&P 500, up approximately 6 percent for the year. By mid-July, it had gained another 3 percent.
But the party was over even before the corks were popped. The correction that I warned about in June rolled into full force and roiled markets and investors. Days when the market was down 200 points were followed by comparable up days until finally, half or more of the year’s gains eroded from the broad market indexes.
Fears of recession and doom made the headlines. The credit crunch in the mortgage markets spooked investors and caused a rush to the stock- market door. The uncertainty of mortgage defaults, i.e. homeowners who forfeit their mortgages, caused finance companies and some of their investment bankers to revalue their assets at a time when buyers of these bonds were few and far between.
As I wrote in a June column, each correction comes with its own reasons attached, but the real reason is buyer fatigue and subsequent panic. This time, the subprime liquidity issue was well known and publicized months ago but nobody seemed to care. When the bull market is tired, then they care.
But Wall Street may be a different story than Main Street right now. In the real world, Leona Helmsley, the billionaire known as the “queen on mean,” willed her dog $12 million and two of her grandchildren nothing. OK, that’s not that real. But anyway, Middle America is doing fine as the number of Americans working is at a record 146 million, thrusting the unemployment rate to a historically low 4.6 percent. In further evidence of a strong U.S. economy, industrial production is up 2.9 percent over the past three months, manufacturing is up 4.7 percent and auto output and computers are up 19.4 and 25 percent respectively.
Rick Glaze is the president of Glaze Capital Management Inc. of Los Altos and a General Securities Principal offering securities through First Allied Securities Inc. For more information, e-mail Rick@Glazecapital.com.
