As of noon today, the TSX lost all of its gains in 2007 and panic seems to have set in with traders who are taking risk in one part of the economy (institutions who lent cheap money to risky borrowers and, to their utter amazement, have found some of the loans will not be repaid on the book of loans is not worth what they were supposed to be worth) and blanketing the entire stock market with this risk. I am always reminded what a trader friend once told me- the traders are most young and have never seen a correction before; they may not have the wisdom and experience to see the forest from the trees when things go down. This appears to be happening.

There are a few things to remember:

1. If you see a stock as a commodity that you flip, then you are having an extremely rough summer. If you see a stock as a cash flow generator (via dividend payments) or a long-term asset, please enjoy your summer holiday and collect your dividend cheques as per usual.
2. This, believe it or not, is a good thing. It removes some of the naked speculators and those who bought on large margins from the market. The fact that this has happened so rapidly in such a short period of time is tantamount to choosing to remove a band-aid slowly or quickly. I would rather be in pain for a short but intense time than a prolonged time (assuming we hit bottom in the next month).  No one should shed a tear if a few hedge funds and financial institutions with questionable lending or investing practices go under. Remember who the subprime mortgage market lent to: NINJA (no income, no job, no asset). Do you really want these players in the market too long?
3. Change equals opportunity and the cream always rises to the top. It is time to start sharpening those pencils and looking for deals. Some blue chip companies have been overly penalized. Remember that for most big banks, their subprime or bad credit exposure is in the millions but they have assets under management of several billion. Look at the context and you’ll start seeing some bargins.
4. Look at the unemployment rate. Its low. Interest rates are relatively low.  The economic fundamentals continue to remain intact.

Tomorrow, we’ll wrap up Personal Finance Book week. A no-prize for whomever guesses which artist and song I quoted from in the title of this post.