Barton Biggs described the stock market as a “mean and sadistic beast” and recent activity has proven him right. Rumors and speculation of bank nationalization have driven stocks of such household names as BankAmerica and Citigroup to under $10. The question of the day is “will the banks be nationalized?” In the last thirty days the Obama administration has committed $3 trillion dollars to restoring economic health. To take over the banks would bloat the US balance sheet even more.
The stock market feels awful as we end January on another down note. The S&P 500 lost over 8% as economic headlines continued to worsen and governments around the globe scrambled to bail out their financial institutions. It’s wise to look under the covers. Not all stock portfolios moved together in January. Large growth portfolios declined less than 3% while large value lost over 11%. Banks got tanked and companies with reliable earnings growth came through. End of story. Owning large banks has been a disaster no matter how you cut it. Returns were much better in January if you owned some bonds and cash.