It has been amazing to watch the unwinding of the economy the past few months, but some of the most riveting action occurred this week on Capitol Hill, where congress debated a bailout plan for Detroit's Big 3 automakers: Ford, Chrysler and General Motors.
Forget the fact that there are at least 15 other automobile manufacturers that are producing vehicles in the US, the executives of these oh-so-American icons of the well-traveled road have been bending the collective ears of congress for the better part of a month now, having argued against the "catastrophic" consequences of their imminent failure by seeking first, a bailout, second, a bridge loan, and finally, "anything" for two of the three (Chrysler and GM), ad Ford fessed up to being in better shape than they had previously let on.
At the end of Thursday night, they still had nothing to show for their weeks of jaw-boning. Senate Republicans (God bless each and every one of their conservative hearts) balked at the idea that the UAW unions would not accept wage concessions to seal a deal, though behind the scenes, it was suggested that the senators wanted the removal of key management figures - especially GM's Rick Waggoner - before signing off on any deal, and that was not part of the package.
In any case, the Senate vote was so far short of a majority last night that the deal fell apart. Now the Bush White House is pondering helping the automakers out on their own, using $15 billion from the TARP plan, originally designed to help ailing banks, but recently having empowered Treasury Secretary to spend the money as he sees fit. Oddly enough, there is just $15 billion left in the first $250 billion tranche approved by congress, exactly the amount GM and Chrysler need.
If the money is made available to Chrysler, it will be a first, in that Chrysler was purchased wholly by Cerberus Equity Partners, a private firm, a few years ago. If the government gets into the business of bailing out privately-held firms, then the doors to hell have been flung wide open. Every small business in need of a lift should head to the Capitol to get his or her share of the booty.
It's a fascinating chapter in the nation's financial history, albeit a very weird one and one which could lead to unforeseen, unintended consequences down the road.
In response, global markets tanked on word that congress was not going to help the automakers, and Wall Street began the morning with a steep loss, until rumor of the administration acting without congressional approval or action began to percolate through the brokerages. stocks gathered momentum throughout the day, with all indices ending with marginal gains.
Dow 8,629.68, +64.59 (0.75%)
NASDAQ 1,540.72, +32.84 (2.18%)
S&P 500 879.73, +6.14 (0.70%)
NYSE Composite 5,543.96, +39.23 (0.71%)
The indicators inside the broader market were mixed. While advancing issues defeated decliners for the day, 4219-2420, However, the steep morning sell-off produced a discouraging result as new lows expanded to 267, while only 11 issues registered new highs. This is indeed a departure from the trend, signaling further losses ahead. Volume was the lightest of the week.
NYSE Volume 5,981,236,500
NASDAQ Volume 1,866,510,500
Adding to the morning's scare was the PPI release for November, which showed the producer price index falling by 2.2% on the heels of October's 2.8% drop. It was just more news the markets didn't need, further proof that the economy remains in a recession/deflation downward spiral.
This piece of video also caught my attention. If you think the worst is behind us, wait until February when malls will turn into ghost towns. It's not getting any better. In fact, economic conditions are almost certain to worsen over the next few months.
Commodities reversed course from the previous few sessions. Oil lost $1.70, to $46.28. Gold dipped $6.10, to $820.50, and silver fell 20 cents to $10.23. Food and fuel prices continue to decline in both wholesale and retail markets. Good for consumers, but not so bright for producers and farmers.
We continue to seek a bottom but don't see one any time soon. Have a nice weekend.
Friday, December 12, 2008
Thursday, December 11, 2008
Stocks Down, Commodities Up, Innovation To Be Found
The roller coaster ride continues with volatility now being hailed as "permanent" by some pundits in the "new" investing environment. Whenever I hear the word "new" and any kind of financial advantage tied to it, my initial instinct is to to liquidate all positions, break out the survivalist gear and head for the hills, because it's almost certain that the market is about to blow down again.
Remember the "new economy" tech bubble of the late 1990s? all of those whiz-bang internet start-ups ended dreadfully circa 2000. Most of them went completely belly up, some survived as mere shadows of their former market capitalizations when it was determined that having a .com at the end of your company name did not automatically imply a valid business plan.
So, please refrain with any "new" ideas. The newness of subprime, interest-only loans, ARMs, packaged SIVs and derivatives have bequeathed today's investors with toxicity throughout all markets, lack of direction and general malaise in almost all earth-bound economies. There's nothing new about this current stock market condition except that the only reliable model is that of the era from 1929-1934, otherwise known as the depths of the Great Depression.
Not that I am one to throw cold water on humping dogs just to ruin their pleasure, but the frequent comparisons are becoming more and more commonplace, and the stock charts stunningly similar. In case you think I'm joking, take a look at two charts of the Dow Jones Industrial Average (each of these links will open in a new window). The first is from August 1, 1929 - December 10, 1929. Then, look at this one from August 1, 2008 - December 10, 2008.
Eerie, huh?
What may be more frightening is the future. If one extends that 1929 chart out to January 1934, when the market finally began to recover, one would see that the bottom was somewhere around 50 (actually 41), from the September top of 380. If you wish to make the comparison, using the August near-top
I continue to make my case that we are now in the early days of the 2nd Great Depression. I know many readers are turned off by this, having been fed the pablum of the masses via mass media on TV and over the airwaves, but I am only reporting what I see happening and comparing it to a previous economic epoch upon which few are well-educated.
Over the coming months, I'll give you not only the bread line stories, but methodology by which you can survive and, hopefully, prosper during what will be very trying times for many. One place to begin looking for success is within the medium which you are now viewing. The internet is one of the greatest business tools ever devised. Many small, medium and large businesses are not only holding their own during this pressing period, but improving, innovating and growing. It was the same during the original Great Depression. While many established businesses were failing, some others were innovating and becoming prosperous. It took a good deal of guile, intuition, blind faith and luck, but there are success stories already emerging. Another area is the "green" environmental movement, which is taking cast-offs and turning them into useful products, recycling waste into energy and producing innovations in everything from building materials to energy.
Dow 8,565.09, -196.33 (2.24%)
NASDAQ 1,507.88, -57.60 (3.68%)
S&P 500 873.59, -25.65 (2.85%)
NYSE Composite 5,504.73, -126.34 (2.24%)
As for today's market of overpriced stocks with convoluted accounting regimes, most of them were losers. Decliners beat back advancing issues, 4947-1730. New lows surpassed new highs by 206-16. Volume remained static.
NYSE Volume 1,469,365,000
NASDAQ Volume 2,078,145,375
While stocks were taking another one on the chin, commodities were offering proof that speculation is not yet dead. Oil advanced by $4.46, closing at $47.98. Gold finished at $826.60, up another $17.80, building off multi-session gains. Silver also gained, adding 23 cents, to $10.43.
Remember the "new economy" tech bubble of the late 1990s? all of those whiz-bang internet start-ups ended dreadfully circa 2000. Most of them went completely belly up, some survived as mere shadows of their former market capitalizations when it was determined that having a .com at the end of your company name did not automatically imply a valid business plan.
So, please refrain with any "new" ideas. The newness of subprime, interest-only loans, ARMs, packaged SIVs and derivatives have bequeathed today's investors with toxicity throughout all markets, lack of direction and general malaise in almost all earth-bound economies. There's nothing new about this current stock market condition except that the only reliable model is that of the era from 1929-1934, otherwise known as the depths of the Great Depression.
Not that I am one to throw cold water on humping dogs just to ruin their pleasure, but the frequent comparisons are becoming more and more commonplace, and the stock charts stunningly similar. In case you think I'm joking, take a look at two charts of the Dow Jones Industrial Average (each of these links will open in a new window). The first is from August 1, 1929 - December 10, 1929. Then, look at this one from August 1, 2008 - December 10, 2008.
Eerie, huh?
What may be more frightening is the future. If one extends that 1929 chart out to January 1934, when the market finally began to recover, one would see that the bottom was somewhere around 50 (actually 41), from the September top of 380. If you wish to make the comparison, using the August near-top
I continue to make my case that we are now in the early days of the 2nd Great Depression. I know many readers are turned off by this, having been fed the pablum of the masses via mass media on TV and over the airwaves, but I am only reporting what I see happening and comparing it to a previous economic epoch upon which few are well-educated.
Over the coming months, I'll give you not only the bread line stories, but methodology by which you can survive and, hopefully, prosper during what will be very trying times for many. One place to begin looking for success is within the medium which you are now viewing. The internet is one of the greatest business tools ever devised. Many small, medium and large businesses are not only holding their own during this pressing period, but improving, innovating and growing. It was the same during the original Great Depression. While many established businesses were failing, some others were innovating and becoming prosperous. It took a good deal of guile, intuition, blind faith and luck, but there are success stories already emerging. Another area is the "green" environmental movement, which is taking cast-offs and turning them into useful products, recycling waste into energy and producing innovations in everything from building materials to energy.
Dow 8,565.09, -196.33 (2.24%)
NASDAQ 1,507.88, -57.60 (3.68%)
S&P 500 873.59, -25.65 (2.85%)
NYSE Composite 5,504.73, -126.34 (2.24%)
As for today's market of overpriced stocks with convoluted accounting regimes, most of them were losers. Decliners beat back advancing issues, 4947-1730. New lows surpassed new highs by 206-16. Volume remained static.
NYSE Volume 1,469,365,000
NASDAQ Volume 2,078,145,375
While stocks were taking another one on the chin, commodities were offering proof that speculation is not yet dead. Oil advanced by $4.46, closing at $47.98. Gold finished at $826.60, up another $17.80, building off multi-session gains. Silver also gained, adding 23 cents, to $10.43.
Wednesday, December 10, 2008
Getting a Grip on Deflation
It's been widely reported that while Fed chairmen, such as Ben Bernanke and his predecessor, Alan Greenspan, dread inflation, what really keeps them up at night is the opposite, deflation. There's probably more than just a kernel of truth to that nugget, and while it can be safely assumed that Greenspan, pushing 90, generally gets plenty of rest, Bernanke is probably having more sleepless nights than he would have ever imagined.
The irony for "Helicopter Ben," who got the nickname when he once opined - when a lowly Fed governor and not head of the whole shooting match - that the US has the ultimate hedge against deflation, a printing press, and that the Fed could "drop money from helicopters" if that was needed to stem a serious slowdown in the economy. Ironic, indeed, because Bernanke has used all the tools at his disposal, and then some, to halt what began as a "contained" subprime mortgage brush fire in 2007, and morphed into a worldwide credit conflagration in 2008 - and none of it has worked.
Today's rise on the US stock markets was nothing more than noise in the middle of a vicious bear market environment. Nothing goes straight up or down, but the Dow seems stuck permanently below the 9000 mark and the other indices haven't gotten much traction either.
Dow 8,761.42, +70.09 (0.81%)
NASDAQ 1,565.48, +18.14 (1.17%)
S&P 500 899.24, +10.57 (1.19%)
NYSE Composite 5,631.07, +108.61 (1.97%)
Ben Bernanke has presided as the Fed Chairman over the worst decline in stocks and the most gargantuan evaporation of wealth EVER. Note, that's not "since the Great Depression," but of all time. An estimated $13 trillion dollars has vanished from the brokerage accounts of citizens, bank balance sheets and real estate values in just the last 16 months, much of it disappearing in just the last three.
The Fed has slashed interest rates, opened its lending facility to more than just member banks, helped Treasury give away a couple hundred billion more to banks on the brink and continues to watch over a global economy that every day sinks lower and lower down the deflation ladder. Home prices, stocks, bond yields, commodities and everything else is being repriced lower on nearly a daily basis. That today and other days are more encouraging that the days of steep losses is insignificant noise in the grander scheme. All asset classes are being treated the same: as worth less than yesterday.
Deflation's specter need not alarm everyone. In fact, as stated in previous posts, for many, deflation is a kind of blessing, giving consumers massive discounts on everything from fish to bread to DVDs. Those who worry about the effect of deflation are anyone with large sums of money, especially if those sums are invested in stocks, art, bonds, real estate or businesses. Of course, some items, like rent, for instance, or taxes, are not falling as quickly as others, if at all, but that day will come. It has to, as a part of the economic cycle, along with decreases in wages (or, more the more commonly-used substitute today: layoffs) and other basic costs, expenses and wealth measurements.
So, the real point is that as long as you have income of some kind, sufficient to meet your needs, you should be fine. If your income is shut off, you will more than likely be unable to replace it in whole (in other words, if you lose your job, your next one is likely to pay less). Those are the real sufferers. Not the banks, bankers, brokers, dealers, etc. The pain is being shared by the unemployed or underemployed and businesses who have lost access to that spending power.
In a truly democratic society, which the USA, is, of course, not, economic cycles would be eliminated by shared pleasure and pain. All wages would go up or down by the same percentage, as would taxes and prices. Naturally, in a capitalist world, that is impossible. while there is pain for some, there still is gain for others, though the two are unequal and unbalanced.
On the day, more stocks gained than lost, 4537-2149. The number of new highs to new lows remained almost static with 191 new lows to just 13 new highs. Volume trended lower than what it has been recently. Whatever rallying mood there was in the AM, dissipated badly in the afternoon, with the Dow briefly sinking into negative territory after 2:00 pm.
NYSE Volume 1,305,271,000
NASDAQ Volume 1,987,494,000
Oil gained $1.45 to close at $43.52. Gold was up $34.60, to $808.80. Silver was higher by 35 cents, to $10.20 per ounce. All of these commodity traders, especially those in precious metals markets are still insisting that theirs is the only "true" currency, that gold should soar to $2000 any day now. They are sorely mistaken. Gold is a great hedge against inflation. Against deflation, it is just another asset waiting to be devalued.
One item of note was today's Monthly Wholesale Trade Report. [PDF], which showed wholesale inventories and sales diverging at an alarming pace, year over year. while sales were lower on a month-to-month basis (-1.1%), they were actually higher than a year ago (+2.7%). Inventories were down 1.1% from September to October, but up 8% from a year ago. The ratio of inventory to sales is rising rapidly, and considering that the data is already more than a month old, is likely to be rising even today. Growing inventory during a sales slump is not a problem most businesses wish to encounter, but it is the prevailing environment today. Obviously, product is moving at a slower pace off wholesalers' shelves, another sign of the times. Consumer spending is grinding to a halt. After the holidays, it will get worse.
OK, that's today's lesson on How to Survive the Second Great Depression. Have a steak for dinner tonight. Beef is cheap.
The irony for "Helicopter Ben," who got the nickname when he once opined - when a lowly Fed governor and not head of the whole shooting match - that the US has the ultimate hedge against deflation, a printing press, and that the Fed could "drop money from helicopters" if that was needed to stem a serious slowdown in the economy. Ironic, indeed, because Bernanke has used all the tools at his disposal, and then some, to halt what began as a "contained" subprime mortgage brush fire in 2007, and morphed into a worldwide credit conflagration in 2008 - and none of it has worked.
Today's rise on the US stock markets was nothing more than noise in the middle of a vicious bear market environment. Nothing goes straight up or down, but the Dow seems stuck permanently below the 9000 mark and the other indices haven't gotten much traction either.
Dow 8,761.42, +70.09 (0.81%)
NASDAQ 1,565.48, +18.14 (1.17%)
S&P 500 899.24, +10.57 (1.19%)
NYSE Composite 5,631.07, +108.61 (1.97%)
Ben Bernanke has presided as the Fed Chairman over the worst decline in stocks and the most gargantuan evaporation of wealth EVER. Note, that's not "since the Great Depression," but of all time. An estimated $13 trillion dollars has vanished from the brokerage accounts of citizens, bank balance sheets and real estate values in just the last 16 months, much of it disappearing in just the last three.
The Fed has slashed interest rates, opened its lending facility to more than just member banks, helped Treasury give away a couple hundred billion more to banks on the brink and continues to watch over a global economy that every day sinks lower and lower down the deflation ladder. Home prices, stocks, bond yields, commodities and everything else is being repriced lower on nearly a daily basis. That today and other days are more encouraging that the days of steep losses is insignificant noise in the grander scheme. All asset classes are being treated the same: as worth less than yesterday.
Deflation's specter need not alarm everyone. In fact, as stated in previous posts, for many, deflation is a kind of blessing, giving consumers massive discounts on everything from fish to bread to DVDs. Those who worry about the effect of deflation are anyone with large sums of money, especially if those sums are invested in stocks, art, bonds, real estate or businesses. Of course, some items, like rent, for instance, or taxes, are not falling as quickly as others, if at all, but that day will come. It has to, as a part of the economic cycle, along with decreases in wages (or, more the more commonly-used substitute today: layoffs) and other basic costs, expenses and wealth measurements.
So, the real point is that as long as you have income of some kind, sufficient to meet your needs, you should be fine. If your income is shut off, you will more than likely be unable to replace it in whole (in other words, if you lose your job, your next one is likely to pay less). Those are the real sufferers. Not the banks, bankers, brokers, dealers, etc. The pain is being shared by the unemployed or underemployed and businesses who have lost access to that spending power.
In a truly democratic society, which the USA, is, of course, not, economic cycles would be eliminated by shared pleasure and pain. All wages would go up or down by the same percentage, as would taxes and prices. Naturally, in a capitalist world, that is impossible. while there is pain for some, there still is gain for others, though the two are unequal and unbalanced.
On the day, more stocks gained than lost, 4537-2149. The number of new highs to new lows remained almost static with 191 new lows to just 13 new highs. Volume trended lower than what it has been recently. Whatever rallying mood there was in the AM, dissipated badly in the afternoon, with the Dow briefly sinking into negative territory after 2:00 pm.
NYSE Volume 1,305,271,000
NASDAQ Volume 1,987,494,000
Oil gained $1.45 to close at $43.52. Gold was up $34.60, to $808.80. Silver was higher by 35 cents, to $10.20 per ounce. All of these commodity traders, especially those in precious metals markets are still insisting that theirs is the only "true" currency, that gold should soar to $2000 any day now. They are sorely mistaken. Gold is a great hedge against inflation. Against deflation, it is just another asset waiting to be devalued.
One item of note was today's Monthly Wholesale Trade Report. [PDF], which showed wholesale inventories and sales diverging at an alarming pace, year over year. while sales were lower on a month-to-month basis (-1.1%), they were actually higher than a year ago (+2.7%). Inventories were down 1.1% from September to October, but up 8% from a year ago. The ratio of inventory to sales is rising rapidly, and considering that the data is already more than a month old, is likely to be rising even today. Growing inventory during a sales slump is not a problem most businesses wish to encounter, but it is the prevailing environment today. Obviously, product is moving at a slower pace off wholesalers' shelves, another sign of the times. Consumer spending is grinding to a halt. After the holidays, it will get worse.
OK, that's today's lesson on How to Survive the Second Great Depression. Have a steak for dinner tonight. Beef is cheap.
Tuesday, December 9, 2008
Blue Chips Seeing Red
Stocks spent all day Tuesday trading underwater and ended near the lows of the day. It seems the sense of the rally from the past few days has been lost on most people with eyes, ears and brains still functioning. Any number of major firms announced more layoffs and/or 2009 forecasts that were well below previous expectations, ranging from poor to dismal, including such notables as Sony Corp., Texas Instrument, Dow Chemical, Nucor, Altera, Broadcom, Disney and FedEx.
The realities of unemployment at 8 or 9% by February, with real unemployment (including the underemployed - part time workers - and those who have simply given up looking and are not counted in government churned and massaged figures) at 14-16%, have begun to sink in, even on Wall Street.
The idea that stocks could go anywhere but down or sideways over the coming six to nine months is beginning to look like a pure pipe dream. Stocks, already battered and beaten down, are sure to fall even further, perhaps as much as 30% or more from current levels. I do not enjoy making these kinds of predictions, but somebody must speak the truth.
Bankruptcy protection is being sought by entities as diverse as the Tribune Co. and the Baltimore Symphony. The list of companies already having announced layoffs is so massive that it took CNBC three full pages to cover them all. But that's hardly the end of it. CNBC also reports that even more job losses than predicted are possible. They're looking at 400-500,000 again in December.
Once again, one has to question where this is all heading. It's pretty simple if you are unafraid to face reality. We are entering a global depression, the likes of which the world has not known since the dreadful 1930s. The culprits are the same - overleveraged bankers without supervision from government led to massive failures (see Citigroup, AIG, Lehman Bros. Bear Stearns, Countrywide, Merrill Lynch, et. al.), government assistance arrived too late and in too arcane a form, credit markets either collapsed or were so severely reigned in by the creditors that almost nobody could borrow for anything, leaving ordinary citizens without work, without credit, and mostly without money to pay for even basic necessities. It's time for the churches to re-open the soup kitchens en masse.
If 16% of the employment force is realistically not working, not earning and thus, not spending, consider the effect that has on all businesses, at every level. There is going to be a shortfall in either gross sales or profits, but more than likely, both. That will only lead to more layoffs, less sales, slimmer profits and a reinforcement of the deflation cycle. Prices will become cheaper for everything, though few will have the money to afford anything.
All of this will take some time, but in the meanwhile, class warfare will break out between haves and have-nots. The haves will be mostly those in the employ of various government entities - towns, cities, states and the feds. The have-nots will generally be everyone else. Somewhere in between these will be a new class of entrepreneurs, hardened like steel to the new environment, who will eventually take the lead in retooling the old establishment and redefining business for the 21st century. Many of these people will be unseen, toiling on the internet or otherwise in relative obscurity, but they shall be the long-term winners. Business models of the past, along with any needless government intervention and regulation, will be tossed aside, ignored or worked around. Give them a broken economy, a computer, keyboard, a mouse, and about four to six years and these new business leaders will reshape everything from journalism to banking to energy. Many of them have already begun.
That there will be a silver lining in the form of new structure of economics, business and leadership won't matter much to the millions who will lose jobs, homes, self-respect and sadly, for some, lives. America and the world is about to embark on a terrible journey to hell and back. Some will not survive the trip.
It was only yesterday that I was informed - much to my surprise - that some very well-heeled-looking people had actually considered filing for bankruptcy over the weekend, and they still may. This is the plight of the typical American suburban family with kids, no savings and loads of debt who are being squeezed by banks that are cutting lines of credit, mostly the home equity variety. The bankers are more than happy to loan cash or credit for goods at 15-25%, but those 6% lines are quickly becoming a thing of the past.
More than any one group, it is the banking institutions - those we've been attempting to "bail out" and "keep from collapsing" - that have caused and continue to exacerbate the conditions extant in the US and broader economies. There's nothing new about this. Brain-dead bankers have always been at the forefront of the worst of any condition: wars, famine, pestilence, foreclosure, bankruptcy, you name it, the bankers will be there with unbending rules and outstretched hands. They are the scourge of every society, from the Pharaohs of Egypt to modern times.
So, is the general investment community and Wall Street finally "getting it?" Not quite yet. There are still advertisements and commercials touting investing in stocks. There will be fewer of them in coming months as the value of stocks sinks further. I've seen ads so convoluted as to suggest that the best time to make money with stocks is during bear markets. Since stocks go down during bear markets, nothing could actually be further from the truth. Others are calling bottoms, touting "sectors" and pimping the stock du jour to the increasingly-desperate and clueless crowd that hasn't already thrown in the equities towel.
But, as each day passes, there is more evidence that hope is fading faster, that even the mighty will fall, and fall harder than most. When 11 of the 30 Dow stocks are trading at $25 per share or less, none of them higher than $85 and all of them down for the year, the seriousness of our current economic condition can hardly be overstated.
Dow 8,691.33, -242.85 (2.72%)
NASDAQ 1,547.34, -24.40 (1.55%)
S&P 500 888.67, -21.03 (2.31%)
NYSE Composite 5,522.66, -117.02 (2.07%)
For the day, only 3 of 30 Dow Industrials finished with gains - Citigroup, DuPont and Intel. In the broader market, the selling intensified as the day wore on, with declining issues outdistancing advancers by a margin of 4452-2264. The number of new lows increased again, to 182, versus a paltry 20 new highs. Volume was a little stronger than normal. All indications are pointing to a retest of the October 27 and November 20 lows. Chances of falling below the year's bottom (Dow 7527) are high, and general concerns are mounting again.
NYSE Volume 1,434,055,000
NASDAQ Volume 2,277,691,000
Oil fell another $1.55, to $42.16. Gold gained $6.40, to $775.70, while silver dropped 16 cents to $9.82. Commodities continue to tell today's story and that of the future. As commodities slump, so will prices of all goods. In addition to drops in the main trio followed here daily, prices for everything from natural gas to pork bellies have taken hits over the past few months.
The remainder of the week offers little in the way of economic data until Friday, when the PPI figures are released along with November retail sales, which have already been demonstrably weak according to data supplied by the retailers themselves and various tracking firms. If no news is good news, it would likely be preferable to ignore what is sure to be a dismal day of data to finish the week.
Only 16 days until Christmas!
The realities of unemployment at 8 or 9% by February, with real unemployment (including the underemployed - part time workers - and those who have simply given up looking and are not counted in government churned and massaged figures) at 14-16%, have begun to sink in, even on Wall Street.
The idea that stocks could go anywhere but down or sideways over the coming six to nine months is beginning to look like a pure pipe dream. Stocks, already battered and beaten down, are sure to fall even further, perhaps as much as 30% or more from current levels. I do not enjoy making these kinds of predictions, but somebody must speak the truth.
Bankruptcy protection is being sought by entities as diverse as the Tribune Co. and the Baltimore Symphony. The list of companies already having announced layoffs is so massive that it took CNBC three full pages to cover them all. But that's hardly the end of it. CNBC also reports that even more job losses than predicted are possible. They're looking at 400-500,000 again in December.
Once again, one has to question where this is all heading. It's pretty simple if you are unafraid to face reality. We are entering a global depression, the likes of which the world has not known since the dreadful 1930s. The culprits are the same - overleveraged bankers without supervision from government led to massive failures (see Citigroup, AIG, Lehman Bros. Bear Stearns, Countrywide, Merrill Lynch, et. al.), government assistance arrived too late and in too arcane a form, credit markets either collapsed or were so severely reigned in by the creditors that almost nobody could borrow for anything, leaving ordinary citizens without work, without credit, and mostly without money to pay for even basic necessities. It's time for the churches to re-open the soup kitchens en masse.
If 16% of the employment force is realistically not working, not earning and thus, not spending, consider the effect that has on all businesses, at every level. There is going to be a shortfall in either gross sales or profits, but more than likely, both. That will only lead to more layoffs, less sales, slimmer profits and a reinforcement of the deflation cycle. Prices will become cheaper for everything, though few will have the money to afford anything.
All of this will take some time, but in the meanwhile, class warfare will break out between haves and have-nots. The haves will be mostly those in the employ of various government entities - towns, cities, states and the feds. The have-nots will generally be everyone else. Somewhere in between these will be a new class of entrepreneurs, hardened like steel to the new environment, who will eventually take the lead in retooling the old establishment and redefining business for the 21st century. Many of these people will be unseen, toiling on the internet or otherwise in relative obscurity, but they shall be the long-term winners. Business models of the past, along with any needless government intervention and regulation, will be tossed aside, ignored or worked around. Give them a broken economy, a computer, keyboard, a mouse, and about four to six years and these new business leaders will reshape everything from journalism to banking to energy. Many of them have already begun.
That there will be a silver lining in the form of new structure of economics, business and leadership won't matter much to the millions who will lose jobs, homes, self-respect and sadly, for some, lives. America and the world is about to embark on a terrible journey to hell and back. Some will not survive the trip.
It was only yesterday that I was informed - much to my surprise - that some very well-heeled-looking people had actually considered filing for bankruptcy over the weekend, and they still may. This is the plight of the typical American suburban family with kids, no savings and loads of debt who are being squeezed by banks that are cutting lines of credit, mostly the home equity variety. The bankers are more than happy to loan cash or credit for goods at 15-25%, but those 6% lines are quickly becoming a thing of the past.
More than any one group, it is the banking institutions - those we've been attempting to "bail out" and "keep from collapsing" - that have caused and continue to exacerbate the conditions extant in the US and broader economies. There's nothing new about this. Brain-dead bankers have always been at the forefront of the worst of any condition: wars, famine, pestilence, foreclosure, bankruptcy, you name it, the bankers will be there with unbending rules and outstretched hands. They are the scourge of every society, from the Pharaohs of Egypt to modern times.
So, is the general investment community and Wall Street finally "getting it?" Not quite yet. There are still advertisements and commercials touting investing in stocks. There will be fewer of them in coming months as the value of stocks sinks further. I've seen ads so convoluted as to suggest that the best time to make money with stocks is during bear markets. Since stocks go down during bear markets, nothing could actually be further from the truth. Others are calling bottoms, touting "sectors" and pimping the stock du jour to the increasingly-desperate and clueless crowd that hasn't already thrown in the equities towel.
But, as each day passes, there is more evidence that hope is fading faster, that even the mighty will fall, and fall harder than most. When 11 of the 30 Dow stocks are trading at $25 per share or less, none of them higher than $85 and all of them down for the year, the seriousness of our current economic condition can hardly be overstated.
Dow 8,691.33, -242.85 (2.72%)
NASDAQ 1,547.34, -24.40 (1.55%)
S&P 500 888.67, -21.03 (2.31%)
NYSE Composite 5,522.66, -117.02 (2.07%)
For the day, only 3 of 30 Dow Industrials finished with gains - Citigroup, DuPont and Intel. In the broader market, the selling intensified as the day wore on, with declining issues outdistancing advancers by a margin of 4452-2264. The number of new lows increased again, to 182, versus a paltry 20 new highs. Volume was a little stronger than normal. All indications are pointing to a retest of the October 27 and November 20 lows. Chances of falling below the year's bottom (Dow 7527) are high, and general concerns are mounting again.
NYSE Volume 1,434,055,000
NASDAQ Volume 2,277,691,000
Oil fell another $1.55, to $42.16. Gold gained $6.40, to $775.70, while silver dropped 16 cents to $9.82. Commodities continue to tell today's story and that of the future. As commodities slump, so will prices of all goods. In addition to drops in the main trio followed here daily, prices for everything from natural gas to pork bellies have taken hits over the past few months.
The remainder of the week offers little in the way of economic data until Friday, when the PPI figures are released along with November retail sales, which have already been demonstrably weak according to data supplied by the retailers themselves and various tracking firms. If no news is good news, it would likely be preferable to ignore what is sure to be a dismal day of data to finish the week.
Only 16 days until Christmas!
Monday, December 8, 2008
More Bank for the Buck Monday
Investors followed up Friday's dazzling rally - on the heels of one of the worst monthly jobs reports ever - with another day of inexplicable gains for beaten-down stocks. all of the major indices recorded gains of at least 3% on the day, boosting the averages back above levels prior to last Monday's near-fatal crash.
Dow 8,934.18, +298.76 (3.46%)
NASDAQ 1,571.74, +62.43 (4.14%)
S&P 500 909.70, +33.63 (3.84%)
NYSE Composite 5,639.68, +238.43 (4.41%
That puts the onus clearly on the most speculative players on the street, as stocks have, as of today, reached levels oddly reminiscent of mid-October, when the economy and the stock market (a leading indicator) were in the throes of one of the worst down-trends of all time.
Clearly, there is something missing in the equation. Investors were dumping stocks for months, culminating in a pair of deep dives to unprecedented levels on October 27 (Dow 8175) and then November 20 (Dow 7552). Since then, nothing has really changed. As a matter of conjecture, conditions have likely worsened, bringing into play the possibility of massive short-covering on both Friday of last week and today.
The non-farm labor report released on December 5, which portrayed the US economy as teetering on the brink with a net loss of over 1/2 million jobs serves as a backdrop to whatever trading has followed. While slashing jobs are generally viewed as good for the balance sheet, the sheer size of November's losses (to say nothing of the revised figures from September and October) must give one pause to consider the general health of the overall economy.
Even the argument that US companies are insulated against US job losses because of their now-global stature fails to hold water. The rest of the world's labor force is being similarly downsized, crimping demand for all manner of products. Retail sales, auto sales and commodity prices are all lower. stocks continue to recover, however. The depth of the denial in the minds of investors and Wall St analysts is stunning.
On the day, advancing issues held sway over decliners, 5153-1637. Today's gap-up did manage to quell the swelling in the number of new lows, which shrank to just 164. There were, however, only 29 new highs. Volume was at normal levels. All this indicates is that investors are still day-trading. No real trend exists except the persistent signs of a solidly bearish market.
NYSE Volume 7,334,573,000
Nasdaq Volume 2,340,814,750
Commodities were mostly priced higher. Oil rebounded $3.11, to $43.92. Gold climbed $22.00, closing at $774.20 in New York, while silver jumped 59 cents, to $10.02.
There was little in the way of genuine news. Congress is still mulling plans to either loan or give money to the Big Three automakers - Ford, GM and Chrysler - though there has been some grumbling about Chrysler, since they have been in private hands for over two years now, owned by Cerberus Capital Partners, a private equity buyout firm. UAW has made comments seeking a board seat and other management concessions in exchange for wage cuts. The price of the Big 3 Bailout is somewhere between $15 billion and $34 billion, though the estimates continue to point toward the lower end of that range.
Media conglomerate, Tribune Co., sought Chapter 11 bankruptcy protection, though, in a pique of irony, kept the Chicago Cubs and Wrigley Field out of the protective umbrella. The Cubs have not won a World Series since 1908. Tribune owns some highly-regarded media properties, including the Chicago Tribune, the LA Times, the Baltimore Sun and Chicago superstation WGN.
They are the first major newspaper chain to seek bankruptcy protection, but surely won't be the last. It just goes to show the value system in America today: bankers get bailouts; writers get rocks.
Dow 8,934.18, +298.76 (3.46%)
NASDAQ 1,571.74, +62.43 (4.14%)
S&P 500 909.70, +33.63 (3.84%)
NYSE Composite 5,639.68, +238.43 (4.41%
That puts the onus clearly on the most speculative players on the street, as stocks have, as of today, reached levels oddly reminiscent of mid-October, when the economy and the stock market (a leading indicator) were in the throes of one of the worst down-trends of all time.
Clearly, there is something missing in the equation. Investors were dumping stocks for months, culminating in a pair of deep dives to unprecedented levels on October 27 (Dow 8175) and then November 20 (Dow 7552). Since then, nothing has really changed. As a matter of conjecture, conditions have likely worsened, bringing into play the possibility of massive short-covering on both Friday of last week and today.
The non-farm labor report released on December 5, which portrayed the US economy as teetering on the brink with a net loss of over 1/2 million jobs serves as a backdrop to whatever trading has followed. While slashing jobs are generally viewed as good for the balance sheet, the sheer size of November's losses (to say nothing of the revised figures from September and October) must give one pause to consider the general health of the overall economy.
Even the argument that US companies are insulated against US job losses because of their now-global stature fails to hold water. The rest of the world's labor force is being similarly downsized, crimping demand for all manner of products. Retail sales, auto sales and commodity prices are all lower. stocks continue to recover, however. The depth of the denial in the minds of investors and Wall St analysts is stunning.
On the day, advancing issues held sway over decliners, 5153-1637. Today's gap-up did manage to quell the swelling in the number of new lows, which shrank to just 164. There were, however, only 29 new highs. Volume was at normal levels. All this indicates is that investors are still day-trading. No real trend exists except the persistent signs of a solidly bearish market.
NYSE Volume 7,334,573,000
Nasdaq Volume 2,340,814,750
Commodities were mostly priced higher. Oil rebounded $3.11, to $43.92. Gold climbed $22.00, closing at $774.20 in New York, while silver jumped 59 cents, to $10.02.
There was little in the way of genuine news. Congress is still mulling plans to either loan or give money to the Big Three automakers - Ford, GM and Chrysler - though there has been some grumbling about Chrysler, since they have been in private hands for over two years now, owned by Cerberus Capital Partners, a private equity buyout firm. UAW has made comments seeking a board seat and other management concessions in exchange for wage cuts. The price of the Big 3 Bailout is somewhere between $15 billion and $34 billion, though the estimates continue to point toward the lower end of that range.
Media conglomerate, Tribune Co., sought Chapter 11 bankruptcy protection, though, in a pique of irony, kept the Chicago Cubs and Wrigley Field out of the protective umbrella. The Cubs have not won a World Series since 1908. Tribune owns some highly-regarded media properties, including the Chicago Tribune, the LA Times, the Baltimore Sun and Chicago superstation WGN.
They are the first major newspaper chain to seek bankruptcy protection, but surely won't be the last. It just goes to show the value system in America today: bankers get bailouts; writers get rocks.
Subscribe to:
Posts (Atom)
Posts
