In my previous article, I spoke about the companies that lost 30% or more.
The down 40 percenters are just as well known: AK Steel (AKS), Alcoa (AA), Allegheny Tech (ATI), Abercrombie & Fitch (ANF), Avon (AVP), Cliffs Natural (CLF), Denbury Resources (DNR), DeVry Education (DV), Encana (ECA), Ensco (ESV), Fossil (FOSL), Joy Global (JOY), Kate Spade (KATE), Action Alerts PLUS portfolio holding Marathon Oil (MRO), Kors (KORS), Murphy Oil (MUR), Oil States (OIS), Ralph Lauren (RL), SanDisk (SNDK), Southwestern Energy (SWN), SunEdison (SUNE), Tidewater (TDW), Viacom (VIAB), Windstream (WIN) and Wynn Resorts (WYNN).
The down 50%s are even household: 3D Systems (DDD), Aeropostale (ARO), Apollo Education (APOL), Chesapeake (CHK), Consol Energy (CNX), Freeport (FCX), HMS Holdings (HMSY), Green Mountain (GMCR), Micron (MU),Peabody (BTU) and Rovi (ROVI).
These are not small caps. They are not dotcoms. They are real companies, many of them making a lot of money. Now, you could argue that they aren't doing well enough to belong at these levels, but I could tell you that if think we are in a bull market, go look at some of the peak-to-troughs on those companies I just mentioned. And remember I am leaving out the names of 182 companies with stocks down double digits.
What's the takeaway here? I know that it will be monumental when the Fed raises rates. I know that earnings will be hurt by a strong dollar. I know that we should pay less for all stocks.
What I am saying, though, is that WE ALREADY ARE.
If you go back to 2011, my operative analogue, we fell almost 20% from the one-two punch of the debt ceiling fight and the far more important near defaults of Portugal, Ireland, Italy, Greece and Spain.
These may not be the biggest of countries, but they have huge bond markets with Italy's being the third largest in the world. With loose regulation that allowed their banks to hide losses that would have folded our banks like cheap cardboard, a default from any one of those countries would have had a catastrophic chain reaction. We could have seen trillions of dollars in losses and Lehman events all over the place. The idea that it would somehow be contained "over there" is inconceivable.
Contrast that with China. The issues with China involve a slowdown, not a recession, and China has a big balance sheet, the biggest in the world, with giant reserves. Sure, it had a stock market that went out of control, but the air has been let out of a lot of these companies in a slower fashion of late, which has allowed investors to go off margin and diminish their substantial losses.
But try as you might to make this into a U.S. problem, you just can't. Now, when I look over the stocks that have been gripped by the declines, many of them are earnings-challenged, for certain. Most of them are solvent; they are just tremendously out of favor.
I think we saw this past week that they can take down both the out of favor and the in favor. What I found amazing was how much of the big gains have already been rolled back for many stocks.
Play it out, though. Let's say the Fed really screws up and gives you two rate hikes this year. What would happen? I think you'd have more of the down 10% stocks go to the down 20% column for certain. I still, however, do not believe that the one-two punch of a strong dollar brought on by the Fed and a general emerging market crisis stemming from that dollar and a challenged China would bring the house down.
So, once again, I totally get the possible carnage that will come from a rate hike. Nevertheless, after staring at these charts for hours and hours, I can only conclude one thing: if we see those lows again that we saw Tuesday, they would reflect a level of pessimism out of whack with the world as we know it.
I am not saying "bring it on." I am saying that the Fed is being pragmatic and setting the stage for what has to be done unless China collapses that week and we have another flash crash right before the meeting.
Otherwise, if you look at the destruction, you would think: "Jeez, the Fed raised way too fast and we are going right in a recession." Except the Fed hasn't raised at all. At least, not yet.
So here's my bottom line: we are building in this hike every day, especially last Monday and Tuesday. When it happens, there will be repercussions for certain, ones we haven't thought of, but ones that many of the stocks I looked at this weekend have discounted already.
