IS IT TIME TO PANIC SELL? 

January 22, 2008

Are we heading for a recession or inflation?  Shall we panic now, is it to late or should we wait for the next upside.  The first thing to do is stop and think, your accounts have gone down and you are scared, it doesn’t make sense to sell everything just for the sake of doing something.

Your accounts have done very well since 2003, and to turn bearish now may not be the right thing to do, if we knew this was going to happen two months ago that would have been the time to be a bear and sell everything, but that was then and this is now.

Making the decision to sell requires analyzing why stocks have fallen.  Just because they have fallen does not mean they will keep falling, unless whatever made them fall is still operating or there is something new that will also make them fall.  If you determine that there was no good reason for these to fall in the first place it may now be a good buying opportunity.

I think we have a panic on our hands, a good old fashioned fire sale. Panic dynamics are very simple, you get scared, you sell, that makes stocks go down, that scared the next guy, he sells, that makes stocks go down more and the next guy even more scared.  It does not end until all the people who trade with their emotions have sold everything at the very bottom.  I suspect these dynamics of panic may have a little longer to run before they burn themselves out.

I do not see anything else other then this dynamics of panic, that justify stocks falling 15%, especially when they where not especially overvalued to begin with.  What would justify these falling further especially now that they are undervalued?

I do not think we will see a recession, retail sales are OK, job growth is still OK, the unemployment rate is still low and jobless claims are low.  Some credit markets are in disarray but bank lending is near an all time high, probably due to the last two years housing decline.

While watching people on T.V. such as so called experts and some politicians, we need to determine if they are a bear or bull, anyone can make a prediction on the future of the stock market, and if they do it long enough at some point in time they will be correct thus panic dynamics.

You can also see this letter on our website www.FinancialAdvisorLocy.com, or of you want to talk to me, call me at 1-800-456-Locy (5629).

Sincerely,

Al Locy RIA