Tuesday, September 2, 2008

Traders Return, but Result is Not Cheerful

Many investors returned to trading on Tuesday after a lengthy summer hiatus which included some of the lowest-volume sessions of the year, occurring in the final two weeks of August.

Right out of the gate, stocks were soaring, mostly due to the uneventful passing of Hurricane Gustav and the consequent drop in oil prices (down more than $4/barrel on Monday). The Dow was up nearly 250 point in the first 20 minutes of the session.

However, the exhilaration soon faded as economic realities reared their ugly heads. Stocks continued to slide all day, with all major indices eventually ending with losses.

Dow 11,516.92 -26.63; NASDAQ 2,349.24 -18.28; S&P 500 1,277.57 -5.26; NYSE Composite 8,296.97 -85.11

With the rise and fall of the markets came increased volume, though the markets could easily still be characterized as "sluggish."

Market internals were mixed. Advancing issues led decliners, 3211-3053, though new lows remained above new highs, 168-137.

What did stocks in on the first unofficial day of fall were economic reports from various agencies. Construction spending in July reportedly fell 0.6%, following a gain of 0.3% in June.

A reading from the Institute for Supply Management (ISM), which tracks overall manufacturing activity, was perhaps the most dour news of the day. The index fell to 49.9 in August after a reading of 50 in July. Any number below 50 shows a contraction, and, while the figure is barely negative, it is not what investors are seeking.

To complicate matters further, in the same report, inflation was seen to be slowing. The August reading of 77 was a far cry from June's 91.5, mostly related to the price of oil. The survey showed commodity prices falling many areas, including copper, corn, fuel oil, natural gas and soybean oil.

This is simply more evidence of a growing worldwide slowdown, which will take down all prices and affect all asset classes, from real estate, to commodities, to collectibles. Between the steep declines in real estate and the continuing diminution of credit, this is a scenario which only numb skulls and dunces could not have seen coming... but, after all, isn't that why we have the Fed... and CNBC?

Oil traded lower by $5.75, to $109.71, while the metals turned in another clunker as well. Gold fell $24.70, to $810.50. Silver was off 56 cents, to $13.15.

The coming global recession is going to be a crusher, especially for over-leveraged companies which have high debt ratios, low profit margins and nowhere to turn. Without financing, a good number of household name-types are going to be on the auction block within the next 6-12 months.

The bright side to the equation is that fear of home heating oil and natural gas breaking the budgets of many consumers this winter are probably unfounded. The giant utilities will have to make due with their already grossly inflated profits. The summer was cool by recent standards, and if the winter is not devastatingly cold, consumers will "weather the storm" as there simply won't be enough demand to hike prices.

As I've said before, everything is going to be a lot cheaper down the road. The trick is to have enough cash on hand with which to afford any or all of it. That's because the failed policies of the Republican-Wall St. junta have left Americans with fewer jobs and those that are available are lower-paying ones.

It will probably take the country four to six years to recover from the damage done by the current administration over the last eight years. Friday's Non-farm employment report will once again show losses of 60-80,000 jobs, continuing a trend that began in December of last year, and that should be more than enough data to convince Americans that four more years of Republican leadership will devastate the economy and the country.

If Obama beats McCain in the fall, the healing could begin by the second quarter of '09. If McCain is elected, expect nothing more than an outright economic and social depression.

NYSE Volume 1,146,155,000
NASDAQ Volume 2,045,446,000

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