Trend: Denial and anger about the substantial impact of bad subprime mortgages is ending while acceptance is still down the road. This suggests that the stock market decline will continue.
Barry Ritholtz at The Big Picture describes the process of acknowledging the impact of subprime problems on the economy and the stock market.
Link: The Big Picture | 5 Stages of Market Grief.
It was introduced by Elisabeth Kübler-Ross in her 1969 book "On Death and Dying". This has become well-known as the "Five Stages of Grief". They are:
1. Denial
2. Anger
3. Bargaining
4. Depression
5. Acceptance
Reviewing recent market commentary, it appears that the investors, traders and pundits alike have been working their way through each of these 5 stages. Consider:
1. Denial: For the longest time, the consensus was that Housing issues wouldn't impact anything else. Classic denial was demonstrated by the insistence that first Housing, then the credit crunch, was "contained."
2. Anger: The details of this were personified by Jim Cramer's now infamous Fed rant. After spending the prior year discussing that Housing was fine (February 2007), and pointing out each bounce in the home builders (November 2006) was proof the Housing bottom was in, Cramer's incredible meltdown was stark evidence that the denial stage was over, and the classic anger stage was beginning.
3. Bargaining: I believe we are now at the bargaining stage. This is reflected in the increased expectations of a 50 bps rate cut (If the Fed cuts aggressively, stocks will be fine).
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