Wednesday, January 14, 2009

It's Official: Economy Stinks; Wall Street is History

If you went to a restaurant for lunch five days a week, but every other time you went there, you either had a bad meal, poor service, the bill was too high or you noticed bugs in the place, how soon would you be looking for other places to eat, bringing your own lunch or skipping the meal altogether?

In many ways, recent experience in the US stock markets has been analogous to the restaurant scenario and many investors are pondering complete withdrawal. Many already have. Some, like fund managers, broker/dealers, traders and the like have no choice; their livelihoods depend on trading. Their ranks, too, have been recently thinned. After today's complete rout, even more will be hitting the streets.

Dow 8,200.14, -248.42 (2.94%)
NASDAQ 1,489.64, -56.82 (3.67%)
S&P 500 842.62, -29.17 (3.35%)
NYSE Composite 5,328.74, -210.10 (3.79%)

Driving the action today were a number of completely expected developments and economic news on retail trade that was absolutely off the chart.

The day began with those retail trade figures that showed December sales slowing by 2.7% from November (remember this was the height of Christmas season) and 9.8% from a year ago. Expect more store closures and retail bankruptcies to follow on soon.

Other news concerned more banking woes - no kidding! - as Deutsche Bank recorded losses of 4.8 billion Euros in the 4th quarter of '08 and British giant HSBC is reportedly in need of a $30 billion cash infusion. Meanwhile, Citigroup is about as dead as a bank can be, having sold off its brokerage unit, Smith Barney, to Morgan Stanley for a paltry amount between $2 and $3 billion. Inasmuch as Morgan Stanley is getting a horde of brokers and a complete trading operation, the price is indicative of just how deep problems in the financial arena are, that adding over a trillion dollars in active accounts is valued so cheaply.

The biggest banks have gone bust. That's now certain. More carnage will follow as the deflationary environment expands, assimilating every aspect of the world's economies.

Each of the Dow's 30 components suffered losses on Wednesday, led by Citigroup, which lost 23%, down 1.37 to 4.53, below the statutory level at which many funds can hold the security. More than half a billion shares of the financial behemoth changed hands during the session.

Falling issues overwhelmed those few rising, 5617-999. New lows expanded even more beyond new highs, 178-15. Volume continues to be subdued.

NYSE Volume 1,417,663,000
NASDAQ Volume 1,948,551,000

The commodity slump continues apace. Oil dropped another 50 cents, to $37.39. Gold hit a 1-month low, losing $11.90, to $808.80. Silver was down 21 cents, to $10.48.

There isn't likely to be a respite from the string of bad news and poor economic reports over the next few days. PPI and CPI are due out Thursday and Friday, and also on Friday, capacity utilization and industrial production figures are released. with only the inauguration of President Barack Obama to break the spell, corporate earnings will garner most of the headlines by the end of next week.

Through the first week of February, earnings will dominate the news and there's a very real chance of stocks breaking down below the November 20 lows. The Dow is within 750 points, other indices are in similar ranges.

Anyone for lunch?

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