Thursday, December 4, 2008

More Churning, More Carnage

Unless you are an idiot or simply a "contrarian," you probably don't have much money invested in stocks at this juncture. Of course, you could be fabulously wealthy and still own stocks, but you are now a little less fabulous and a lot less wealthy. So, why do I write a piece of market recap and rehash every day? Eventually, there will be bargains and there will also be a time to begin investing again and until that time, it pays to stay informed, because...

The destruction of the US economic system continues apace. On Thursday, the Labor Department reported that there were more people on unemployment insurance than at any time since 1992.

Manufacturing slowed once more in October. Factory orders fell for the third month in a row, down by 5.1%, according to the latest government statistics.

There is one sliver of truth in government figures. One can safely assume that after the head-bobbers and number-crunchers get their mitts on raw data, it's been so heavily massaged that it wants nothing more than a hot shower and a nap. The numbers released by various government agencies have a common thread: They are always wrong. If it's good news, they usually make it sound better than it is, and the same goes for bad news. In other words, if the government were to report that, say, 300 people died in turkey fires over the Thanksgiving holiday, the real number would likely be 20-30% higher.

Thus, today's report that factory orders declined by 5.1% should more accurately be noted as 6.2%. It truly is becoming worse than "they" say it is.

People are losing jobs at a rapid clip. Those in the public sector, by the middle of next year, will be the last ones standing. Expect unemployment to reach at least 10%, according to the feds, because the real figures are already approaching that and may shoot as high as 15-17% before this economic disaster is fully played out. Not only are jobs being surrendered, people are not finding new work.

Retailers announced massive year-over-year declines, mostly in the teens, but that's hardly a surprise to anyone paying attention.

By the time Mr. Obama takes office in January, there may not be much of an economy left to rescue. He'll surely step into a world of problems, none of which were his creation, but which he will be blamed for and charged with the responsibility to fix. The poor man didn't realize what a mess would be handed to him. He'll need the help of every American to bring our country back from the brink of economic doomsday and it will take much longer than anyone currently anticipates.

Stocks did on Thursday what they do best, they went down some more. The selling was in response to some of the economic news, but, being that the bulk of the losses occurred in the last hour much of the trading was geared toward Friday's pre-opening non-farms payroll report for November, which is likely to record another 200,000+ job losses and send stocks spiraling down even more.

Dow 8,376.24, -215.45 (2.51%)
NASDAQ 1,445.56, -46.82 (3.14%)
S&P 500 845.22, -25.52 (2.93%)
NYSE Composite 5,232.26, -173.29 (3.21%

As expected, losers outpaced gainers, 4792-1914. New lows surpassed new highs, 340-31. Ho-hum. Nothing new there. Volume was moderate.

NYSE Volume 1,469,269,000
NASDAQ Volume 2,063,347,000

Oil declined to its lowest price level in four years, losing $3.12, to $43.67 a barrel. Gold lost $5.00, to $765.50. Silver slipped another 7 cents to close at $9.52 per ounce. The commodities continue to follow the deflationary course.

So, what is one to do if the US economy really is worse than it appears (and that's pretty bad, as it is)?

If you have any stocks, sell them now. The cash will come in handy and there won't be a rebound to levels seen earlier this year for many equities for a number of years, like five, or ten, or longer. Some of the companies in which you may already be invested will not even be listed at this time a year or two from now. There will be massive layoffs, followed by bankruptcies in all sectors. Nothing will be spared.

Also, if the banks haven't already severed your lines of credit and you are a little short on cash, take the cash from your credit line, or buy things you can quickly convert to cash. Banks are pulling lines of credit all over the map. If you've got a 5% home equity line of credit, take a large lump sum in cash. The bank will likely balk, and afterwards close down your credit line, but you will have the cash and it will be better than credit.

Save. Put money aside. Put off that trip to the mall; buy less expensive gifts; cut back on unnecessary expenses.

And, most of all, don't panic. There will be plenty of that going on without you joining the chorus of screams and rants. Besides, if you're prudent and wise, you will be able to snatch up valuable assets at a fraction of their true value. And in the long run, you will emerge far ahead of the pack.

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