Stock market sell off continues

This week I was quite busy again. No time to continue on some stock analysis work. No time to actually look at the market. I didn't expect the situation to turn better, and it did so. In fact, it is getting a little bit out of hand. Continuous bad news flow (more mortgage default), less than stellar earning (even good earning also get battled down), constant broker downgrade and margin call sums up the week.

I haven't seen anything like that for quite a long time. If you throw a stone out now, most probably you would hit a single digit PE stock, which 6 months ago, people are eager to buy on any dip. As planned I didn't commit any fresh capital and the better picture didn't emerge.

When I look at the source of problem, I would think these are the following:

1. Excessive borrowing in US. US has borrowed so much money from the world, the wall street has engineered so many creative financial product to fatten the investment banker wallet. When the situation unwind, it is like something never see before

2. Strong emerging market demand. Both soft, hard commodities had the great bull run. Wheat, corn, soya, oil palm, crude oil. What ever you name, all goes up. The demand isn't slowing, because the Asia government is subsiding the people. As people didn't feel the pinch, they haven't cut back the consumption. The mushrooming of hedge fund and promotion of commodity investment these year also to be blamed for the situation. Food is to be consumed not to be invested (Of course, your adviser would tell you otherwise)

3. Over optimistic euphoria and your trend following analyst. When the party is on, everybody is so engrossed in it and everything is expensive. Expensive in the sense that we are at multi year high. Although theoretically stock grow at 20% a year should be able to command PE of 20. We got a fair valuation which not enough to protect us on the downside. The human instinct of afraid of missing the boat con people (include me) to make purchase. Although looking at 3-5 years horizon, I am not afraid at all. Analyst who shouted so high valuation, where are you now? You are busy downgrading. You follow the trend and adjust your valuation, by attaching high valuation on bull and low on bear. The call intensify the market swing.

All in all, nobody is absolutely right or wrong. You are your money's master, you decide what is the best for it. Although it could go down further, I would say at this kind of depressed valuation, the risk should be lower. But, remember no low is too low, and no high is too high.