Bears, Bulls, Chickens and Pigs: wOw’s Wall Street Weekly with Liz Peek (Week of 11/17) 

Editor’s Note: Liz Peek is a financial columnist and the author of wOw’s SHEconomics. 

OK, so now I am getting really angry. And also frightened. This may be very good news, because those of you who regularly read this column (bless you!) know that I have steadfastly looked for the silver lining these past few months. When everyone is running in one direction, I usually try to head in the other. That’s what you’re supposed to do as an investor, but it sure hasn’t helped this year. Recently, it’s been smart to run for the exits along with everyone else.

I’m mad – at Congress, at Treasury Secretary Paulson (I wish he would develop laryngitis), at President Bush, who has so squandered his personal capital that he can’t produce even a modicum of credible reassurance for the nation, at the auto companies for sounding more alarm bells at exactly the worst time and for resolutely making terrible automobiles, at the banks for sitting on piles of money, at the idiot at my favorite light-rock music station who started playing Christmas music on November 10 reminding me of just how somber the holidays are going to be this year, for all those who are  pulling their money out of the market and buying Treasuries instead and for one of my friends who said to a group at lunch the other day, “Well, my husband saw this coming so we are in very, very good shape.” I almost punched her. The new social etiquette is: Don’t crow. Most people are hurting, badly.

I live in New York, the epicenter of this crisis. I don’t at all want to minimize the pain being felt elsewhere, but here in the country’s financial center everyone knows people who have lost their jobs and their fortunes. Talk easily turns to that most dreaded possibility – New York sliding back into the crime-ridden darkness of the 1970s when magnificent apartments sold for one dollar – to someone who could handle the maintenance. Already the son of a friend has been mugged – at midnight on the street where I live – no injuries, thank heavens, but a very frightening episode nonetheless.

So is this the end? Are we heading for a decade of depression? Are Treasuries the only place to put money? Most people think that the shocking drop in stock prices has little to do with fundamentals and everything to do with panic. Look at United States Steel (NYSE X $21), which is selling at two-and-a-half times forward earnings despite a robust balance sheet and expectations of future infrastructure spending which would boost demand for steel. The stock is being trashed because all types of construction (now including commercial) are headed south, guaranteeing a downturn in steel demand. Still … two times earnings?

And what about Citigroup, selling under $5 per share? This mighty financial institution that only recently received another shot of capital from their Saudi prince – isn’t the company going to survive? The talk late last night was of restructuring or possible sale, but surely most scenarios would not wipe out the common shareholders.

The best explanation for the rout in stocks that I have read recently was in yesterday’s Wall Street Journal. In a story titled “Ignore the Stock Market Until February,” a former hedge-fund manager details several reasons that the market is plummeting. The first, believe it or not, is tax-loss selling. Even though the market has seemingly gone straight down all year, fund managers are still sitting on gains in stocks they bought years ago. Since investors want their money back – Right Now! – funds are taking gains as they dump stocks. The ultimate insult will be to find out that you’re down 55% in the mutual fund you just redeemed, but you still owe Uncle Sam capital gains tax. I had dinner with a longtime manager earlier this week who warned me that everyone should look into this. Most of us (sadly) are in an excellent position to take losses, and should do so.