Greece is defaulting! No, it isn't. Italy is on the ropes! No, it isn't.
The talking heads on television rehash these debates daily, interrupted periodically by videos of Wall Street's angry occupiers and breathless discussions of the latest twists in euro-crats' squabbling over debt haircuts and bank recapitalizations. The market jumps up and down like a yoyo, while investors' nerves get shattered.
No wonder several people I know have cashed out of most of their stocks just to be able to sleep well.
This is a mistake.
You see, Mr. Market is a perverse creature who hates rising with too many investors in his hip pocket. He does his best to shake them off at market bottoms, so people are out of the market and have to buy stocks on the way up, feeding gains.
I am fairly sure we're now at a bottom. A scary bottom, yes. A temporary one, yes. But a bottom nonetheless – if you can ignore the daily madness.
As (partial) proof, let's look back.
On Aug. 13, I recommended that you start selling bonds and start buying stocks. Since then Treasuries are up 4 per cent, while the S&P 500 has shot up 16 per cent. Yes, stocks' volatility during that time was heart-stopping because of all the folks who keep clicking on "buy" after every rise and on "sell" after every plunge, but the gains for those who held on have been impressive.
Your task for the months ahead should be to keep the faith.
As a remedy to the panic, I suggest you turn off your computer and look at your portfolio only once every week or two. Stay invested and keep adding stocks on down weeks.
There are solid reasons – at least temporarily – for optimism. Corporate profits are strong and share valuations are relatively cheap by historical standards. Long-term interest rates are low, companies are awash in cash and takeovers are happening at a rapid rate, a sign that many managers believe their rivals are a bargain.
In North America, the system is stronger than many people realize. Major banks took serious writedowns in the crisis of 2009 and their balance sheets are cleaner, at least for a while. The U.S. Federal Reserve signalled earlier this week that it is willing to embark on yet another round of unconventional stimulus.
Across the Atlantic, the current hysteria is serving a useful purpose. History shows voters and policy makers make important concessions only when leaders can prove to their constituencies that worse will happen if they don't concede. That process is playing out now in Europe, as Greece and its creditors batter out a new living arrangement, and the next couple of months should see a gradual rise in confidence as the continent comes to grip with some of the reforms it needs to impose.
Bit by bit, the market will climb a wall of panic while trying its best to make you sell your stocks.
My advice is to refuse to sell. You're richer than you were on Aug. 13, and although the market may temporarily take back some of your profits, you will be even richer if you hang on and refuse to sell until next year.
Why next year? Some time before the middle of 2012, the fragile euro zone consensus stands a high chance of unravelling again as the jury-rigged bonds that the continent is now issuing go pfffft. An economy that needs trillions to fill its debt chasm is trying to paper over the cracks with billions, which never works out well.
At the same time, investors will begin to assess the very real possibility that the next U.S. President will be a Republican who will have every reason to immediately tackle the country's debt problem so he or she can build the foundation for a durable recovery beginning just in time to ensure re-election.
My scenario sees stocks rising for the next few months, before being hit by a wave of selling. We'll soon see if things play out the way I expect.
In the meantime, I continue to agree with Value Line's Sam Eisenstadt. His forecasting model, and my own, show that the market should rise here. That rise has begun, but it isn't yet over. So turn off your television and stay invested.