Wednesday, November 7, 2007

I See a Bottom

Actually, that's what somebody posted on a message board about 3:15 pm this afternoon. That was before the Dow dropped another 150 points into the close.

I don't see a bottom. Maybe in three to six months my powers of prognostication will be improved, but the next stop is somewhere in the range of 12,800 on the Dow - the August lows. And it probably isn't going to stop there.

Today's US equity markets were roiled by a massive, $39 billion 3rd quarter loss by General Motors, spiking oil prices (why wasn't the market tanking when oil hit $75, or $85?) and continued deterioration in the credit markets.

There's a lot of talk these days about the credit markets. Let's be clear. Banks are in deep, deep trouble and they aren't about to lend money to just anyone. If you're an individual, you need absolutely perfect credit. Companies need AAA ratings, loads of solid repayment history and still they're going to pay through the teeth. It's very tight and scary in financial markets right now. There is talk not only of recession, but depression, though we're still far removed from that possibility at this juncture.

Fortunately, there will be more signs - ominous though they may be - before banks begin to fail. Small businesses will close first because they are the most prone to catastrophe in economic downturns. That would happen on a regional basis, most likely in smaller communities. Of course, the level of personal bankruptcies is already alarming.

$100 Car Payments
Edmonton, Vancouver, Bad Credit, Divorced, Bankruptcy OK. Apply online.
Next, larger firms would go belly up. Mostly, those would be private concerns, which is why the boom to "take private" public companies has been suddenly and irrevocably reversed course. There is no M&A activity to speak of. When public companies go under, then the handwriting is already on the wall, so, if you take a look at some of the mortgage firms and hedge fund operations which have gone under recently, it looks like we're quite a bit closer to economic meltdown than the ordinary, uninformed citizen would assume. And we probably are.

Dow 13,300.02 -360.92; NASDAQ 2,748.76 -76.42; S&P 500 1,475.62 -44.65; NYSE Composite 9,830.15 -272.26

There have been 13 days this year in which the Dow lost 200 or more points. 11 of them have occurred within the last 4 months. Today was the 5th worst decline of the year. Obviously, we are not living in an economic utopia.

If we're headed for a recession, or even a prolonged depression, how do we get out of it? First, it should be understood that some will fare better than others. Some entire communities will barely feel the effects. Others will be devastated. The poor and the lower levels of the middle class will be hardest hit. Some say they have already been hit. How we get out of financial distress depends on the wisdom and actions of our elected officials, which, considering the current crop, means we're pretty much screwed.

Anybody who has money invested in the stock markets, in mutual funds, retirement accounts, IRAs, etc. is going to feel a great deal poorer a year from now. That's almost a certitude. But, we do have a financial infrastructure that is deeply-rooted in government employment. Teachers, postal workers, public works workers will not see any declines in their rates of pay.

But the private sector can only survive if it is itself vibrant and growing. It is not. If you work for anyone other than a government entity, you'd be wise to prepare for the worst because the stock market is telling you, loud and clear, that it's coming. And it's not going to relent. The level of economic destruction about to be unleashed upon the United States of America will be unprecedented unless - again - our elected leaders take action that is sound and correct and broad-based.

The initial actions taken by the Federal Reserve, of lowing interest rates, has been a disastrous beginning. Rates should be raised to reflect the realities of the marketplace. Money should be tight. It should be well-guarded and every dollar respected. The Fed has sent exactly the wrong message so far, but that's what we get from a central bank that fomented the largest credit expansion in the history of the world and a government that cannot restrain itself from overspending.

Back to today's market. The 5,500 declining issues dwarfed the 897 advancers. New lows ravaged new highs, 776-203.

Oil actually took a breather, losing some 33 cents to close at $96.37. That price is artificially high, unsustainable, illusory and about 30-40 dollars too high. It's a price that will bankrupt entire nations.

Gold closed at an all-time high of $833.50 with no end in sight. Silver took a little off the top after a massive run-up, losing 6 cents to $15.33.

We're all in for a world of hurt and the blame can be firmly placed on the elected "leaders" in Washington and the corrupt media and their selective reportage. They - except for a chosen few - are no better than common crooks and they have traded on the nation's wealth to enrich themselves. May they all burn in hell for what they have wrought.

NYSE Volume 4,301,055,000
NASDAQ Volume 2,561,720,500

No comments: