Unpatriotic Institutions

investmenttool.com Opinion

The individual investor did the patriotic thing last week and held firm. In general, 99% of 401 K holders stuck to their long term plan and did not sell stock. Many individuals bought more shares of stock last week. So who is selling stock and why are they doing it.

Insurance companies are selling stock to make sure they have enough cash to cover potential claims from the disastrous terror assaults. This makes sense. There are airplanes to replace and billions in property claims and life insurance to pay.

Beyond that however, many insurance companies have already sold more than enough to cover their potential liabilities. This is a selfish move that is bad for the policyholders, the market and their own stockholders. In the internet age, a click of a mouse should give you the potential liability from the crash in a few milliseconds. Selling beyond that level simply puts you in a position to have to pay more when it comes time to get back in stocks.

Many institutional investors with nothing at risk have simply dumped as much stock as they feel the market will bear. This is not the proper response of a patriotic firm or a smart investor. The fundamentals of the U.S. economy are not changed. The economy was going nowhere and will most certainly plunge into recession this quarter. So what. We have had those before and the Federal Reserve has done what it can to make it short.

A wave of mortgage refinancing is going on right now, freeing up more money in consumers pockets for spending. The money is going to hit the economy because consumers are probably the only ones patriotic enough to do the right thing. Besides, why should we let Bin Laden ruin the holidays. The kiddies still need toys.

The short sellers are having a ball right now, shorting everything they can. One solution proposed, probably not practical is to forbid your brokerage from lending out your shares to short sellers. You could pull those stocks out of your account and insist on paper stock certificates. None of these things are terribly practical.

You could however call those institutional investors and warn them that your future business depends on their actions. If your insurance company dumps ten time the shares it needs to covers claims you could warn them that it could affect your choice of insurers. If enough people do this, corporate America will listen.

The bottom line is really simple. As I noted in this weeks cover story we have a chance to purchase stocks at 1998 prices. I'm taking advantage of it. If we see 1997 or 1996 prices, I'll be right back buying again.

The U.S. economy is going nowhere fast and a year of Greenspan rate cuts are going to start coursing through the veins of this economy. Have some money in cash. That is always useful. But do you want to be the sucker who is not in stocks when this market turns on a time? Do you want to be the one who says two years from now that you wished you'd bought the terrorist crash of 2001? Don't wish. Do it. In a few years, you'll be glad you did it.

Note: Individual investors should seek the advice of a trusted investment advisor. Investmenttool.com is not licensed to give securities advice. Nothing in this article should be construed as such.

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Shmuel Protter
investmenttool.com

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