Friday, November 14, 2008

Clearly, More Trouble Ahead for Economy

After a short-covering spree boosted stocks on Thursday, it was back to selling on Friday as news and economic reports clearly demonstrated the the US and world economy was headed for even more trouble.

Prior to the opening bell on wall Street, the Commerce Department offered a glimpse of the pain, releasing October retail sales data that showed the worst one-month decline in history, a drop of 2.8%.

On the macro-economic front, both import and export prices fell as the full wrath of deflation began to manifest themselves.

Dow 8,497.31 -337.94; NASDAQ 1,516.85 -79.85; S&P 500 873.29 -38.00; NYSE Composite 5,452.63 -263.16

As expected, there was no follow-through on yesterday's rally. Instead, investors are scrambling to get their money out of stocks as quickly as possible, even though some companies seem to be in relatively good health. Nonetheless, share prices continue to decline with no end in sight.

Internals were decidedly negative. declining issues overwhelmed advancers, 5041-1378. There were 503 new lows, but only 10 new highs. Volume was on the low side.

NYSE Volume 1,449,427,000
NASDAQ Volume 2,273,926,000

On Capitol Hill, Rep. Dennis Kucinich called the Treasury Secretary's change in the TARP bailout plan - from buying up bad mortgage debt to taking equity stakes in troubled banks - a "classic bait-and-switch." Other members of the House finance committee (of which Kucinich is the Chairman) echoed his comments and plan on further hearings on the scope and nature of the $750 billion bailout.

Fed Chairman (and full time moron) Ben Bernanke hinted that the Fed could cut interest rates once again, at the next meeting of the FOMC in December, from their current 1%. Of course, talk is now cheaper than ever in Washington, as one administration (the one which caused the problems) is on the way out the door and the Obama people are lining up for high government positions.

Bernanke's absurd concept of lowering key federal funds rates below 1% is a desperate idea designed to inject liquidity into still frozen capital markets.

That same term, "liquidity," has already been bantered about at the economic summit which kicked off today in Washington. Here we have the economic and political leaders of major nations all in one place trying to figure out how to further cripple free market economics. No doubt they will encourage more government spending and various high-sounding concepts which will do nothing except extend the now-global contraction.

Here's where we are in a nutshell: 1930. It was at this point, at the very early stages of the global Great Depression, that the government intervened in all kinds of ways. Of course, their plans did nothing. It wasn't until the mid-30s, when FDR's jobs and public works programs began to take effect, that the economy began to improve.

There's some hope that President-elect Obama and his advisors will begin to implement middle class tax cuts and public works programs that will ameliorate the condition to a degree. But, there's no question that the US and other nations are in for a long - another two to three years at least - period of economic instability in which - get this - the rich get poorer and the poor get better.

So, the dark clouds you witness hovering over the stock markets and on the news do actually have significant silver linings, if you are already poor or middle class and can manage your assets and income reasonably well. Forget stocks, forget retirement. Keep yourself liquid and on the lookout for the varied economic windfalls which will present themselves in months and years to come.

Commodities, by the way, were mixed again. Oil dipped another $1.46, to $57.60, but gold gained $37.50, to $742.50 and silver powered higher by 69 cents, to $9.49. While those gains look good today, they will likely not be sustained. All asset classes continue to decline, and the precious metals are not immune. In fact, due to various cash-for-gold schemes, there is a growing amount of gold coming into the market, and that will only serve to depress gold prices.

Just remember: everything is getting cheaper. If something you want is not selling for an acceptably low price, ask for a discount. Sellers of goods of all kinds will take less today and even less tomorrow.

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