FRIDAY MAY 7, 2010

Just when you thought it safe to go back in the water!

Yesterday's 1000 point intra-day decline, the largest in history, was a scary event like none I ever experienced.  The sell-off was apparently exacerbated by a trading "glitch"  Amazingly, as of late Friday afternoon, it is still unclear what exactly the "glitch" was.  Various trading platforms are pointing fingers at each other.  It will be interesting to learn the what and hows of the glitch.  However, the demage is already done.  While the market rallied back strongly from the 1000 point decline to end the day with a decline of "only" 350 Dow points, the "glitch" has undermined the confidence of our usually reliable trading platforms.  Combined with the on-going saga in Greece, the market has entered correction mode.  In the last two days, the market has decline nearly 500 points.  Hopefully, the exchanges and regulators will get to the bottom of the glitch and confidence in the system will return.

The immediate impact of this week's trading is the likely sidelining of the retail investors for a more extended time.  As discussed in this blog before, there is an enormous amount of money, still over $3 trillion, sitting in money market securities.  The 3 month T-bill yields only .08%!  Like the sun bathers sitting on the safety of the shore in the movie "JAWS,"  retail investors have refused to go back into the water ever since the horror of the 50% decline in 2008-2009.  Oh, they have been tempted as the powerful stock market recovery has ensued, but retail investor has refuse to dive in.  Just when it appeared safe to go back in the water, we get the Greece contagion and the "glitch."  Now, not only will they not go in the water, but they moved their chairs further back from the water line!

What does this all mean?  First, I think the volatility in the markets will be wild over the next few weeks.  Second, the equity markets have lost, at least for the moment, a potential catalyst as the $3 trillion won't be reentering the market anytime soon.  Finally, for those brave enough to dive into the water when everyone is scared to death, I think this will be a great opportunity.  But what a scary dive it will be!

POSTED AT 1899-12-30 16:25:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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