Race to the Bottom

Stocks continued on their inexorable grind back towards recent lows on Tuesday, sending the major indices to their fourth loss in the last five sessions. Only a mid-afternoon rally kept stocks from sinking even further.

The day didn't offer any huge surprises, just the usual assortment of downbeat economic news and jitters over the rapid decline in consumer spending. The good news - if it can be called that - is that retailers are offering unprecedented pre-holiday discounts on everything from socks to CDs following unusually soft spending in October.

Dow 8,693.96 -176.58; NASDAQ 1,580.90 -35.84; S&P 500 898.95 -20.26; NYSE Composite 5,634.37 -167.68

On the day, declining issues outpaced advancers by a widening margin, 5001-1395. New lows continued their domination over new highs, also by a growing margin, 700-15. Both of those data sets indicate that the market is still fundamentally weak and subject to further downdrafts. Without a solid bottom in place, stock could continue to languish for some time. Volume was moderate, a little better than Monday, but nothing to either dissuade or encourage investors.

NYSE Volume 1,226,731,000
NASDAQ Volume 1,935,806,000

Oil took another hit on Tuesday, losing $3.08, to $59.33. It was the first time oil has closed below $60 on the NYMerc in nearly two years. The metals followed the trend, with gold down $13.70, to $732.80, and silver losing 42 cents to $9.81. As has been mentioned numerous times here, everything is going to get cheaper. The trick, for most Americans, is to hold onto whatever job they may have and seek out bargains for essentials.

While retailers are likely to have a very poor holiday season, individuals and families, for the most part, will enjoy a somewhat sober season and gifts that won't put a dent in their budgets. Those who have ready cash should fare quite well during the downturn, with their fortunes improving the longer the slump continues.

There was some news in the banking sector as Citigroup announced a plan to keep people in their homes, canceling foreclosure plans via mortgage modifications for roughly 500,000 home owners. American Express received approval to become a commercial bank, which will allow it to tap into short-term loans (and maybe a bite or two from the bailout brunch) from the Federal Reserve.

How hard one is affected by economic conditions will vary widely by region and employment. The Northeast seems to be the least affected, as the mortgage meltdown was largely an event outside the region. People in the West, South and Midwest are going to suffer the most, as incomes stagnate, jobs disappear and the fallout from collapsing home prices brings down everything around it.

One thing is becoming more and more clear by the day. The weight of this recession is not going to end with the consumer, but with state and local governments, which are being forced into nearly illiquid circumstances as property tax bases shrink along with all other forms of revenue, especially income and sales taxes. The likelihood of mass layoffs of municipal employees becomes greater with each passing day. Widespread layoffs of public employees could, in fact, turn this recession into a long-lasting depression with unemployment hovering between 12 and 15% of the work force and continued sluggishness throughout the economy.

As the cold winds begin to blow across much of the nation, the feeling is that there's little to stop the surging wave of layoffs, spending cuts and morbid economic circumstances.