Reading the Writing on the New, Same Old Wall Street ~ The Risk Averse Alert

Tuesday, November 11, 2008

Reading the Writing on the New, Same Old Wall Street

So, what's it like out there? What are the believers of monetarist fantasies pitching their readers? Does anyone else but me see a purposefully orchestrated, mad scramble for capital, quite possibly continuing for years to come?

Excuse me for venturing where no one else dares. I certainly do not think myself the sharpest tool in the shed. Just why I possess such mental and spiritual acuity even to imagine purposeful intent behind a campaign affecting chaos and blackmail is a wonder I leave to God. All too plainly, though, I see the proverbial writing on the wall.

Having seen enough of life to know history is not dead, but rather a living, breathing continuum within a framework where there is nothing new under the sun, the dynamic making the trend your friend is less imperfectly understood. Such, then, is how I might look at the most obscure of small-cap stocks and conclude the message presented in its recent performance speaks of great danger ahead...

company chart (NP)

The thing I would draw your attention to is the volume of shares traded. Do you see anything standing out during the recent decline of Neenah Paper?

Today I read, "a few courageous (and historically successful) investors are making a good case for buying up some undervalued stocks right now."

I also learned, "When you look back over the last 10 recessionary environments, what tends to lead back on the upside is small-cap equities." (William Greiner, Chief Investment Officer of UMB Asset Management)

Furthermore, "Like springtime crocuses, small-cap stocks flourish once the harsh cold of a bear market is over… Because small-caps are undervalued once the market turns around, they benefit disproportionately from an earnings recovery." (Larry Light, Wall Street Journal)

Given the magnitude of Neenah Paper's collapse over the past year as the fallout from the collapse of Wall Street's Structured Finance unfolded, you would think some sign of distress ... fear ... even panic ... would have shown in the volume of shares traded.

Yet what do you see?

Nothing ... notta ... flat line!

So, what does this mean?

Well, back in April-May I wrote about a "crisis of confidence" revealed by a diminished volume of shares traded on the NYSE ... this while indexes were rising. Then, again in August the same unmistakable sign of a buyers strike once again appeared. Indeed, this very same sickness most likely is behind the collapse of Neenah Paper over the past year.

Because the evidence is just so stark in this instance — and forcefully tempers the conventional thinking I quoted above — I wanted to dedicate tonight's post to a notable element of the big picture supporting my thinking on the new era I believe we have entered. Likewise, having recently suggested a new paradigm be acknowledged, so analytical considerations toward what lies ahead might be well-founded, I should qualify "new" as really being nothing new at all.

After all, a buyer's strike is a buyer's strike, and is as plainly evidenced now by the volume of shares traded as it was back in January, 1930.

Considering how sentiment built up over decades might not be radically altered anytime soon, I give you the following PBS broadcast. As you watch it consider the present moment reflected by the quotes I noted above, keeping in mind there's evidence suggesting the sentiment they convey might be ill-conceived. Look for similar instances of the same misguided thinking occurring in the period this presentation documents. Above all else, remember this: there is nothing new under the sun...

Fast Money
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