How to shake the bear market funk

One is Bob Markman of Markman Capital Management in Edina, Minn., who does not expect the markets to turn around until people give up in despair. He counsels that there's no need to rush back in. “When the market turns around, it typically rises 30 to 50 percent, so who cares about missing the first dozen percent,” he says. “You should start buying when things start moving up, not down.”

Investors on Main Street, however, cite other actions that would begin to restore their confidence that the economy will pull through this crisis. Bob Indech of Norcross, Ga., an engineer, would like to see Congress permit the US government to loan money directly to the 4 million or so Americans in danger of foreclosure. The free-falling housing market, he says, has wrecked the ability of financial institutions holding mortgage-related securities to accurately "mark to market" the value of those assets, forcing them to sit on their cash reserves and cinch in lending lines.

Bailing out homeowners directly would not necessarily appease Wall Street, says Mr. Indech, who estimates he has lost about 20 percent of the paper value of his own investment portfolio in the past month. But it would address the fundamental problem of the crisis in a way that the existing rescue plan has not. He estimates it would also be a cheaper solution, costing perhaps $35 billion.

“You can’t have a trickle-down philosophy for a crisis problem. It doesn’t work,” says Indech. “You don’t pay [banks] to influence their behavior in the hopes that they will then behave in the way you want them to behave. The problem is not Wall Street, it’s Main Street. It’s simple, but people who live in ivory towers and have million-dollar salaries just don’t see the problems of the poor people on Main Street. It’s not in their understanding.”

To some others, it doesn't help that all this financial uncertainty is coinciding with political uncertainty over who will be the next US president. That’s the view of former investment banker Mark Small, now an information technology director at an Atlanta firm. He estimates he’s lost at least 25 percent of his stock value in the past week.

Mr. Small says Sen. Barack Obama’s widening lead in national polls over presidential contender Sen. John McCain has sent a signal to investors that change is coming – to wit, that Democrats are likely to control both Congress and the White House.

“Whenever there’s a political change in Washington, you see people start pulling their money out,” says Small. “The bottom line is people aren’t sure where [the next administration] is going to take us.”

Some of Small’s investor friends are now urging him to buy up stocks at bargain-basement prices, but he so far hasn’t moved. Buttressing the Wall Street meltdown are job concerns, he says.

“There’s a real fear out there that they’ll come in and say, ‘We’re eliminating your department,’ and then you’re out of a job,” says Small. “That makes betting on stocks riskier, since you may be in a situation where you need the money, and now you suddenly have a lot less money if you need to take it out of the market.”

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