It was back to business as usual for the first trading day of the first full week of 2009, meaning that investors went about the business of shedding losers and making incremental bets on safety stocks. Speculation has just about been wrung out of the market along with the wicked volatility that marked trading in the 4th quarter of 2008. In fact, the Dow Jones Industrials, in which 300-500 point daily swings had become commonplace, has only had one day, has only had one 300-point swing - from the low to the high of the day - in its last eight sessions.
Traders have grown weary of the relentless selling pressure, while many are surely sitting out until close to Inauguration Day (Jan. 20) which neatly coincides with the kickoff of 4th quarter earnings season. The duopoly of events should make for some interesting developments nearing the end of the month. For now, however, the major indices are holding onto pretty good gains for '09, garnered on Friday's New Year rally.
Dow 8,952.89, -81.80 (0.91%)
NASDAQ 1,628.03, -4.18 (0.26%)
S&P 500 927.45, -4.35 (0.47%)
NYSE Composite 5,908.43, -7.30 (0.12%)
Monday's losses finished off a three-day winning streak for the major indices, though advancing issues outdid decliners by a wide margin, 4016-2655. New lows continued their domineering streak over new highs, though the margin narrowed once more, to 68-40, in favor of the lows.
Volume was again modest, if not downright depressing. There is a notable lack of enthusiasm, due, no doubt to the vicious beating investors took in 2008. There needs to be more clarity from Washington as well as Wall Street for investors to regain a modicum of confidence that stocks are still good investments. The Dow spent all day underwater, while the other averages only briefly posted positive numbers.
NYSE Volume 1,322,749,000
NASDAQ Volume 1,800,739,000
Commodities were all over the place. Oil gained $2.47, to close at $48.81. Gold slipped $21.70, to $857.80, while silver fell 22 cents, to $11.27. Natural gas futures for March remain stubbornly above their seasonal norm, today gaining 9 cents to close at $6.09. Potential disruptions in Eastern Europe and an unusually cold December have contributed to higher prices for the commodity by which nearly 2/3rds of American homes are heated.
As the world awaits the official taking of power by President-elect Barack Obama, there is a palpably tense mood overwhelming the nation, if not the world. It is as though we are holding our collective breaths - especially with the ongoing violence in Gaza - until we can exhale when we officially appoint a new leader. Until then, the market should only take baby steps, unless there is some remarkable news or event to disrupt the anxiety.
Monday, January 5, 2009
Friday, January 2, 2009
Optimistic Investors Push Dow Past 9000
It's a new year, so let's all buy the stocks we sold for losses in 2008.
That seemed to be the prevailing mentality as Wall Street staged its third consecutive rally in a row, starting 2009 off with a veritable bang.
Of course, this kind of optimism is exactly what bears like, even more than bulls. The January Effect seems to be in full flower, with investors jumping in with abandon. Apparently, there's still far too many plungers out there willing to take risks on stocks - even following the worst year on Wall Street since the 1930s - for a realistic bottom to form.
That a real, enduring bottom will form at some later date is almost assured, unless President Obama turns out to be a miracle worker instead of a politician. His administration begins in just 18 days, and investors are encouraged that a change of parties and policies will produce prosperity.
While stocks scrambled up the charts on Friday, economic news was less-than-reassuring. The Institute for Supply Management (ISM) Manufacturing Index, a key measure of manufacturing strength or weakness, tumbled to 32.4% in December, following a reading of 36.2% in November. It was the lowest reading for this particular report since June 1980. The report included some nuggets of just how weak the manufacturing sector really is, including this:
Despite that sobering bit of news, investors were undeterred from staking out positions.
Dow 9,034.69, +258.30 (2.94%)
NASDAQ 1,632.21, +55.18 (3.50%)
S&P 500 931.80, +28.55 (3.16%)
NYSE Composite 5,915.73, +158.68 (2.76%)
Another indication that the recent rally is unsustainable is the relatively low volume, which, for the past three sessions, including today's, were more in line with mid-Summer doldrums rather than an expanding market condition.
NYSE Volume 4,075,754,500
NASDAQ Volume 1,464,044,875
Advancing issues leaped ahead of decliners, 5084-1415. New lows outnumbered new highs, but by a very slim margin, 54-20. This indicates that the market is either headed for a long reversal rally or that this 3-day event is just about over. New highs have only surpassed new lows 4 or 5 times (on a day-to-day basis) in the last 14 months.
Commodities were mixed. Oil gained $1.74 per barrel, to $46.34. Gold lost $4.80, to $879.50. Silver gained 20 cents to $11.49.
It was a welcome relief rally for investors, who want to at least believe that the market cannot go down any more.
Did somebody say, "sucker rally?" We'll see in days and weeks ahead. Earnings for the 4th quarter will begin to flow to the street in three weeks and they're predicted to be short of expectations in a variety of industries, not the least of which will be retail.
It will be interesting to note the January Barometer, which is a highly accurate predictive tool based on the premise that whatever direction the S&P 500 ends the month is the direction for stocks the rest of the year.
The January Barometer was a highly useful predictor last year, when the S&P lost 90 points in January, presaging a 2008 total loss of 465 points.
That seemed to be the prevailing mentality as Wall Street staged its third consecutive rally in a row, starting 2009 off with a veritable bang.
Of course, this kind of optimism is exactly what bears like, even more than bulls. The January Effect seems to be in full flower, with investors jumping in with abandon. Apparently, there's still far too many plungers out there willing to take risks on stocks - even following the worst year on Wall Street since the 1930s - for a realistic bottom to form.
That a real, enduring bottom will form at some later date is almost assured, unless President Obama turns out to be a miracle worker instead of a politician. His administration begins in just 18 days, and investors are encouraged that a change of parties and policies will produce prosperity.
While stocks scrambled up the charts on Friday, economic news was less-than-reassuring. The Institute for Supply Management (ISM) Manufacturing Index, a key measure of manufacturing strength or weakness, tumbled to 32.4% in December, following a reading of 36.2% in November. It was the lowest reading for this particular report since June 1980. The report included some nuggets of just how weak the manufacturing sector really is, including this:
"New orders have contracted for 13 consecutive months, and are at the lowest level on record going back to January 1948. Order backlogs have fallen to the lowest level since ISM began tracking the Backlog of Orders Index in January 1993. Manufacturers are reducing inventories and shutting down capacity to offset the slower rate of activity."
Despite that sobering bit of news, investors were undeterred from staking out positions.
Dow 9,034.69, +258.30 (2.94%)
NASDAQ 1,632.21, +55.18 (3.50%)
S&P 500 931.80, +28.55 (3.16%)
NYSE Composite 5,915.73, +158.68 (2.76%)
Another indication that the recent rally is unsustainable is the relatively low volume, which, for the past three sessions, including today's, were more in line with mid-Summer doldrums rather than an expanding market condition.
NYSE Volume 4,075,754,500
NASDAQ Volume 1,464,044,875
Advancing issues leaped ahead of decliners, 5084-1415. New lows outnumbered new highs, but by a very slim margin, 54-20. This indicates that the market is either headed for a long reversal rally or that this 3-day event is just about over. New highs have only surpassed new lows 4 or 5 times (on a day-to-day basis) in the last 14 months.
Commodities were mixed. Oil gained $1.74 per barrel, to $46.34. Gold lost $4.80, to $879.50. Silver gained 20 cents to $11.49.
It was a welcome relief rally for investors, who want to at least believe that the market cannot go down any more.
Did somebody say, "sucker rally?" We'll see in days and weeks ahead. Earnings for the 4th quarter will begin to flow to the street in three weeks and they're predicted to be short of expectations in a variety of industries, not the least of which will be retail.
It will be interesting to note the January Barometer, which is a highly accurate predictive tool based on the premise that whatever direction the S&P 500 ends the month is the direction for stocks the rest of the year.
The January Barometer was a highly useful predictor last year, when the S&P lost 90 points in January, presaging a 2008 total loss of 465 points.
Economic Predictions for 2009
Making predictions for an entire year is usually an effort in futility or, when the year comes to an end, a message of humility. Nobody has the crystal ball of the ancient prophets. Nowhere is there a font of knowledge from which one can plumb what people will do tomorrow, next week, or next month. Thus, predictions are nothing more than educated guesses, or just plain guesses, without the benefit of analysis.
Fortunately, we have projections and predictions all around us. For the most part, they offer glimpses of what people hope for, not what they fear. But it is only by facing the fear, realizing the worst, that we can proceed onto greater things.
The Roman philosopher Lucretius intoned, many years ago, "Fear was the first thing on earth to make gods."
How right he was. In the earliest days of recorded history, people feared their environment. It was harsh and brutal; there were wild beasts and floods and storms and fires and rain. The people turned these elements into gods to be not only feared, but revered and honored. Sacrifices were offered to them in hopes that their wrath upon the race would not be severe, that we would be spared.
It worked. Humanity survived all the pain that the earth and the skies could produce. Better yet, humanity prospered and grew.
Facing the fear was fine in ancient times, but today, we longer offer sacrificial lambs to the sun or the moon or the seas. They have been tamed (what a fine conceit that is), or at least we've devised ways in which we survive the occasional natural extreme, better. Houses are stronger. Oil and natural gas heat us in winter. We have even harnessed some of nature - in many marvelous ways - to our benefit.
We no longer fear nature. Men and money are the more obvious threats today. The global financial system is creaking under the weight of mountains of bad debt and fiat money, even more produced during the 2008 crash, that has to find a way into the system, even though everyone - from the banks down to the individual piggy bank - is hoarding it. The government is giving it away, and that's essentially inflationary. As the money trickles into the system, inflation will eventually emerge, though that seems a far-off event as we enter the new year.
The first thing one needs to understand about 2009 is that it's likely to be worse than 2008, and that's the fear up to which we must now face. Most people only saw their "nest eggs" decline by 50%. Some people lost their jobs - about 2 million, roughly. More sizable layoffs are coming, beginning with retailers in January. But, I'm getting ahead of myself.
Here's the most elemental of predictions: Will a very small basic basket of food - say a chicken, five pounds of potatoes, a couple cans of vegetables, a loaf of bread and four sticks or a tub of of margarine (it's better than butter) - cost more today or on January 2, 2010?
It just so happens that, as a human, I have to eat in order to survive, so I know these prices pretty well. Here's what I recently spent on the above-noted items:
7 Pound Chicken: $5.53 (79¢ a pound)
5 pound bag of potatoes: $1.99
Canned corn or peas: $0.39
Loaf of bread: $0.99
Four sticks of margarine: $0.99
Grand total: $9.89.
I'll check back in a year to see what it costs then. Of course, prices vary by locale, where you shop and use of coupons, but these are, in my estimation, pretty low. It doesn't seem likely that many are going to go hungry or starve when a family of four can basically have one solid meal for a mere $10. I predict food prices to go even lower during the year and probably remain slightly depressed throughout the year. Demand being the big driver in foodstuffs, the prospects for anything more than a 10% dip would assume that more people stop eating or that people eat more of their own produce. Either of those are not probably going to occur in any great way.
Next, the big question, will oil and gas stay low, or will they skyrocket again?
Right now, oil is ranging around $38-45 per barrel and gas is generally $1.50-$1.80 per gallon in the US. These prices are going to fluctuate up and down with the seasons, though they won't be anywhere as volatile as the past few years. Gas should not top $2.00 a gallon in most locales outside the big cities, and it could go under a buck in some Southern states. Oil's ceiling is probably $50, and slack demand could drop it into the high $20s, though it should spend most of the year right round $35, a very sustainable price level.
Gold and silver will still be safe-havens. Gold should top out just below $1000 an ounce and not dip below $650. It won't be a great year for the gold bugs, but they'll still be better off than most. Silver could very easily be a big winner, up 30-50%. The Gold-Silver ratio is far out of whack. It used to be 15:1. Now it's closer to 80:1. Look for mean reversion, with gold going lower and silver going higher, relatively.
As for currencies, they are a mixed bag, but everyone is going to feel the pain. The US dollar might continue to gain against other currencies, since they now are all feeling our pain. Americans need to change their habits for that trend to continue, however, and they will, as people hoard cash.
Speaking of cash, it will be KING. Anybody with disposable income or money on hand may find incredible deals on everything from automobiles to real estate. Collectors of anything will be able to add or fill in missing pieces at very reasonable prices. Art, jewelry, baseball cards and everything else collectible will fall in price as demand withers.
Stocks will stink. Even from the depressed levels of today, there will be further declines of 15-25%. Naturally, there will be some gains, with most of them occurring in the first half of the year. But, when the GDP figures and economic indicators begin to reveal just how long and deep this recession has become, investors will bail out of stocks once more. Here are the ranges for the major indices:
Dow: 6500-9700
NASDAQ: 1165-1840
S&P 500: 720-1175
NYSE Comp.: 4500-6750
I'm not about to speculate in those markets because they're going to remain somewhat volatile, but the long-term primary trend is still down, the bear market has not been broken; nor has the bottom been plumbed. Stocks have to be seen as absolutely horrible investments before they begin to act like good ones. So far, sentiment is still not completely negative on equities, so there's still room to fall, plenty of it.
Besides the economic distress that will continue to spread across the nation and into nearly every industry, comparables are going to be tough in the first three quarters. Many companies turned solid profits in the first three quarters of 2008, but those will be tough - if not impossible - to replicate. The big losers will be retailers, followed by banks, insurance companies, and anything financial, manufacturers, health care providers, consumer discretionary and recreation and entertainment. The few winners will emerge from the internet sector, high tech, energy (especially those offering clean or green tech solutions) and agriculture.
Some regional banks may post profits, especially if they are outside the Federal Reserve system and are invested locally, though there aren't many locales which will be spared from the economic consequences stemming from global confidence collapse.
Real estate will continue its slump as Alt-A and ARM mortgages begin resetting, taking the place of subprime. More people with standard mortgages will default as job losses grow, and the commercial real estate market is going to break apart. 250,000 retail stores could close between 2008 and 2009. More than half of that number has already occurred or been announced. The glut of commercial space will be monumental and not worked out for at least 7-10 years. Even though the commercial sector is only 1/10th the size of residential, its demise will be so complete as to add to the misery and lengthen the economic correction.
Of course, much of this favors the consumer, for a change. Prices will go down, and those with jobs and money will be able to afford a decent lifestyle. There will be more people on unemployment or some kind of government assistance than ever before, further straining the already bloated federal budget and busting some state and local bodies.
Government authorities will have to walk a fine line between cutting services and jobs. Government revenues will be hard hit across the nation, and job cuts are sure to embolden unions who will fight for every position. Service cuts are easier, and will be the likely choice for narrow-minded politicians who populate state and local offices. Eventually, the public outcry for tax relief will be the loudest, starting with reassessment of overvalued real estate by distressed property owners and ending with income tax revolts against states. In between, there will be more cheating and outright refusal to remit taxes on every level.
Protests and even riots could occur as government begins to be seen more as the problem than the solution.
Some caveats and wild cards:
President Barack Obama: Obama could be anything from a tremendous, creative leader to an outright bust, depending on his policy initiatives. Beginning with what we already know, that an infrastructure stimulus plan is going to be on his desk - and signed by him - on January 21, the prospects aren't that hopeful. while Obama preached "change" during the campaign, many of his appointees seem to have been recycled from the Clinton years, so a minor departure from the "status quo" is expected. He needs to make bold moves, but may opt for safety in closely calculated small changes. In the end, even very aggressive fiscal policy won't undo the monetary blunders already in the works.
War and Pestilence: The threat of widening wars are still with us, though it seems certain that we will be out of Iraq - for all intents and purposes - by the end of 2009. Afghanistan is another powderkeg altogether, especially with disruptions in Pakistan and India. There are other areas of concern, such as the former Soviet satellite states of Georgia and the Ukraine, and much of Africa. The chances are good, however, that we'll stay out of serious conflicts, at least for a while. While nobody can predict the next outbreak of the Bubonic Plague or similar scourges, disease seems to be the least of anyone's worries right now. That probably won't change, though one never knows.
More bank failures and systemic collapse: We can almost count on more banks falling into insolvency, but a big one, like Citigroup or JP Morgan Chase defaulting remains a particular threat to the global environment and could trigger a worldwide crisis which would make today's environment look like a summer picnic.
In the final analysis, 2009 should not be bad for people at the lower income levels, at least those already receiving assistance or with full time jobs. An phalanx of middle class people will fall into poverty due to job losses, and investors will continue to seek profits in stocks without finding them. The rich will get poorer, if that's any consolation, but their money will go further. The huge disparities in incomes has not yet begun to be wrung from the system, and that will take years, not months.
If anything is for certain, GDP will shrink by as much as 5% and maybe more. Recovery is still a long way off, as this recession begins to look more like a depression. Money and credit will remain unusually tight, though interest rates will stay low. Government efforts to reflate will continue to fail. Unemployment will reach 9%, according to government numbers, though the real unemployment rate will be closer to 20%. Home prices will fall another 10-15% and the number of foreclosures will not subside. Delinquencies, bankruptcies and business liquidations will spur a new age of entrepreneurism based on a cash model which excludes most traditional forms of financing.
Cash will be king. Silver will be a knight in shining armor. It doesn't have to be a rough year if one understands that the fear we must face is that of an economy and monetary system which has failed. It's time to readjust and realign.
Good luck. You'll need some of that, too.
Fortunately, we have projections and predictions all around us. For the most part, they offer glimpses of what people hope for, not what they fear. But it is only by facing the fear, realizing the worst, that we can proceed onto greater things.
The Roman philosopher Lucretius intoned, many years ago, "Fear was the first thing on earth to make gods."
How right he was. In the earliest days of recorded history, people feared their environment. It was harsh and brutal; there were wild beasts and floods and storms and fires and rain. The people turned these elements into gods to be not only feared, but revered and honored. Sacrifices were offered to them in hopes that their wrath upon the race would not be severe, that we would be spared.
It worked. Humanity survived all the pain that the earth and the skies could produce. Better yet, humanity prospered and grew.
Facing the fear was fine in ancient times, but today, we longer offer sacrificial lambs to the sun or the moon or the seas. They have been tamed (what a fine conceit that is), or at least we've devised ways in which we survive the occasional natural extreme, better. Houses are stronger. Oil and natural gas heat us in winter. We have even harnessed some of nature - in many marvelous ways - to our benefit.
We no longer fear nature. Men and money are the more obvious threats today. The global financial system is creaking under the weight of mountains of bad debt and fiat money, even more produced during the 2008 crash, that has to find a way into the system, even though everyone - from the banks down to the individual piggy bank - is hoarding it. The government is giving it away, and that's essentially inflationary. As the money trickles into the system, inflation will eventually emerge, though that seems a far-off event as we enter the new year.
The first thing one needs to understand about 2009 is that it's likely to be worse than 2008, and that's the fear up to which we must now face. Most people only saw their "nest eggs" decline by 50%. Some people lost their jobs - about 2 million, roughly. More sizable layoffs are coming, beginning with retailers in January. But, I'm getting ahead of myself.
Here's the most elemental of predictions: Will a very small basic basket of food - say a chicken, five pounds of potatoes, a couple cans of vegetables, a loaf of bread and four sticks or a tub of of margarine (it's better than butter) - cost more today or on January 2, 2010?
It just so happens that, as a human, I have to eat in order to survive, so I know these prices pretty well. Here's what I recently spent on the above-noted items:
7 Pound Chicken: $5.53 (79¢ a pound)
5 pound bag of potatoes: $1.99
Canned corn or peas: $0.39
Loaf of bread: $0.99
Four sticks of margarine: $0.99
Grand total: $9.89.
I'll check back in a year to see what it costs then. Of course, prices vary by locale, where you shop and use of coupons, but these are, in my estimation, pretty low. It doesn't seem likely that many are going to go hungry or starve when a family of four can basically have one solid meal for a mere $10. I predict food prices to go even lower during the year and probably remain slightly depressed throughout the year. Demand being the big driver in foodstuffs, the prospects for anything more than a 10% dip would assume that more people stop eating or that people eat more of their own produce. Either of those are not probably going to occur in any great way.
Next, the big question, will oil and gas stay low, or will they skyrocket again?
Right now, oil is ranging around $38-45 per barrel and gas is generally $1.50-$1.80 per gallon in the US. These prices are going to fluctuate up and down with the seasons, though they won't be anywhere as volatile as the past few years. Gas should not top $2.00 a gallon in most locales outside the big cities, and it could go under a buck in some Southern states. Oil's ceiling is probably $50, and slack demand could drop it into the high $20s, though it should spend most of the year right round $35, a very sustainable price level.
Gold and silver will still be safe-havens. Gold should top out just below $1000 an ounce and not dip below $650. It won't be a great year for the gold bugs, but they'll still be better off than most. Silver could very easily be a big winner, up 30-50%. The Gold-Silver ratio is far out of whack. It used to be 15:1. Now it's closer to 80:1. Look for mean reversion, with gold going lower and silver going higher, relatively.
As for currencies, they are a mixed bag, but everyone is going to feel the pain. The US dollar might continue to gain against other currencies, since they now are all feeling our pain. Americans need to change their habits for that trend to continue, however, and they will, as people hoard cash.
Speaking of cash, it will be KING. Anybody with disposable income or money on hand may find incredible deals on everything from automobiles to real estate. Collectors of anything will be able to add or fill in missing pieces at very reasonable prices. Art, jewelry, baseball cards and everything else collectible will fall in price as demand withers.
Stocks will stink. Even from the depressed levels of today, there will be further declines of 15-25%. Naturally, there will be some gains, with most of them occurring in the first half of the year. But, when the GDP figures and economic indicators begin to reveal just how long and deep this recession has become, investors will bail out of stocks once more. Here are the ranges for the major indices:
Dow: 6500-9700
NASDAQ: 1165-1840
S&P 500: 720-1175
NYSE Comp.: 4500-6750
I'm not about to speculate in those markets because they're going to remain somewhat volatile, but the long-term primary trend is still down, the bear market has not been broken; nor has the bottom been plumbed. Stocks have to be seen as absolutely horrible investments before they begin to act like good ones. So far, sentiment is still not completely negative on equities, so there's still room to fall, plenty of it.
Besides the economic distress that will continue to spread across the nation and into nearly every industry, comparables are going to be tough in the first three quarters. Many companies turned solid profits in the first three quarters of 2008, but those will be tough - if not impossible - to replicate. The big losers will be retailers, followed by banks, insurance companies, and anything financial, manufacturers, health care providers, consumer discretionary and recreation and entertainment. The few winners will emerge from the internet sector, high tech, energy (especially those offering clean or green tech solutions) and agriculture.
Some regional banks may post profits, especially if they are outside the Federal Reserve system and are invested locally, though there aren't many locales which will be spared from the economic consequences stemming from global confidence collapse.
Real estate will continue its slump as Alt-A and ARM mortgages begin resetting, taking the place of subprime. More people with standard mortgages will default as job losses grow, and the commercial real estate market is going to break apart. 250,000 retail stores could close between 2008 and 2009. More than half of that number has already occurred or been announced. The glut of commercial space will be monumental and not worked out for at least 7-10 years. Even though the commercial sector is only 1/10th the size of residential, its demise will be so complete as to add to the misery and lengthen the economic correction.
Of course, much of this favors the consumer, for a change. Prices will go down, and those with jobs and money will be able to afford a decent lifestyle. There will be more people on unemployment or some kind of government assistance than ever before, further straining the already bloated federal budget and busting some state and local bodies.
Government authorities will have to walk a fine line between cutting services and jobs. Government revenues will be hard hit across the nation, and job cuts are sure to embolden unions who will fight for every position. Service cuts are easier, and will be the likely choice for narrow-minded politicians who populate state and local offices. Eventually, the public outcry for tax relief will be the loudest, starting with reassessment of overvalued real estate by distressed property owners and ending with income tax revolts against states. In between, there will be more cheating and outright refusal to remit taxes on every level.
Protests and even riots could occur as government begins to be seen more as the problem than the solution.
Some caveats and wild cards:
President Barack Obama: Obama could be anything from a tremendous, creative leader to an outright bust, depending on his policy initiatives. Beginning with what we already know, that an infrastructure stimulus plan is going to be on his desk - and signed by him - on January 21, the prospects aren't that hopeful. while Obama preached "change" during the campaign, many of his appointees seem to have been recycled from the Clinton years, so a minor departure from the "status quo" is expected. He needs to make bold moves, but may opt for safety in closely calculated small changes. In the end, even very aggressive fiscal policy won't undo the monetary blunders already in the works.
War and Pestilence: The threat of widening wars are still with us, though it seems certain that we will be out of Iraq - for all intents and purposes - by the end of 2009. Afghanistan is another powderkeg altogether, especially with disruptions in Pakistan and India. There are other areas of concern, such as the former Soviet satellite states of Georgia and the Ukraine, and much of Africa. The chances are good, however, that we'll stay out of serious conflicts, at least for a while. While nobody can predict the next outbreak of the Bubonic Plague or similar scourges, disease seems to be the least of anyone's worries right now. That probably won't change, though one never knows.
More bank failures and systemic collapse: We can almost count on more banks falling into insolvency, but a big one, like Citigroup or JP Morgan Chase defaulting remains a particular threat to the global environment and could trigger a worldwide crisis which would make today's environment look like a summer picnic.
In the final analysis, 2009 should not be bad for people at the lower income levels, at least those already receiving assistance or with full time jobs. An phalanx of middle class people will fall into poverty due to job losses, and investors will continue to seek profits in stocks without finding them. The rich will get poorer, if that's any consolation, but their money will go further. The huge disparities in incomes has not yet begun to be wrung from the system, and that will take years, not months.
If anything is for certain, GDP will shrink by as much as 5% and maybe more. Recovery is still a long way off, as this recession begins to look more like a depression. Money and credit will remain unusually tight, though interest rates will stay low. Government efforts to reflate will continue to fail. Unemployment will reach 9%, according to government numbers, though the real unemployment rate will be closer to 20%. Home prices will fall another 10-15% and the number of foreclosures will not subside. Delinquencies, bankruptcies and business liquidations will spur a new age of entrepreneurism based on a cash model which excludes most traditional forms of financing.
Cash will be king. Silver will be a knight in shining armor. It doesn't have to be a rough year if one understands that the fear we must face is that of an economy and monetary system which has failed. It's time to readjust and realign.
Good luck. You'll need some of that, too.
Wednesday, December 31, 2008
Markets Finish Dismal Year on Positive Note
Hope springs eternal.
It was that kind of sentiment that typified trading in the final session of 2008. Stocks put a day of solid gains for the second straight day, though they finish the year with massive losses and an investment community dazed by insecurity and a failed economy. Stocks approached key resistance late in the day and retreated, with most participants happy to say goodbye to a truly horrible year.
The pain was equally shared amongst the indices.
The Dow ended 2008 with a loss of 4488.43, closing at 8776.39 from the Dec. 31, 2007 close of 13264.82, a 33.83% drop in overall value.
The NASDAQ fell 1075.25, from 2652.28 to 1577.03, a 41% loss.
The S&P 500 lost 565.11, from 1468.36 903.25, off 38%.
The NYSE Composite skidded 3983.27, from 9740.32 to 5757.05, a 39% decline.
On the day:
Dow 8,776.39, +108.00 (1.25%)
NASDAQ 1,577.03, +26.33 (1.70%)
S&P 500 903.25. +12.61 (1.42%)
NYSE Composite 5,757.05, +87.05 (1.54%)
Advancers 5476, Decliners 1345. New lows out finished new highs once more, 155-46. a trend that has now exceeded 14 months with only intermittent breaks. Volume was subdued.
NYSE Volume 1,308,103,000
NASDAQ Volume 1,557,348,000
Commodities soared at year end. Oil priced $5.57 higher, closing at $44.60. Gold gained $14.30, to $884.30. Silver added 32 cents at $11.30 per ounce.
Overall, the buying of the past two sessions shouldn't be considered any kind of a trend, as much of the purchases were tax or allocation induced. The real action begins with great levels of doubt, fear and faith on Friday.
Happy New Year!
Check this page tomorrow for annual predictions.
It was that kind of sentiment that typified trading in the final session of 2008. Stocks put a day of solid gains for the second straight day, though they finish the year with massive losses and an investment community dazed by insecurity and a failed economy. Stocks approached key resistance late in the day and retreated, with most participants happy to say goodbye to a truly horrible year.
The pain was equally shared amongst the indices.
The Dow ended 2008 with a loss of 4488.43, closing at 8776.39 from the Dec. 31, 2007 close of 13264.82, a 33.83% drop in overall value.
The NASDAQ fell 1075.25, from 2652.28 to 1577.03, a 41% loss.
The S&P 500 lost 565.11, from 1468.36 903.25, off 38%.
The NYSE Composite skidded 3983.27, from 9740.32 to 5757.05, a 39% decline.
On the day:
Dow 8,776.39, +108.00 (1.25%)
NASDAQ 1,577.03, +26.33 (1.70%)
S&P 500 903.25. +12.61 (1.42%)
NYSE Composite 5,757.05, +87.05 (1.54%)
Advancers 5476, Decliners 1345. New lows out finished new highs once more, 155-46. a trend that has now exceeded 14 months with only intermittent breaks. Volume was subdued.
NYSE Volume 1,308,103,000
NASDAQ Volume 1,557,348,000
Commodities soared at year end. Oil priced $5.57 higher, closing at $44.60. Gold gained $14.30, to $884.30. Silver added 32 cents at $11.30 per ounce.
Overall, the buying of the past two sessions shouldn't be considered any kind of a trend, as much of the purchases were tax or allocation induced. The real action begins with great levels of doubt, fear and faith on Friday.
Happy New Year!
Check this page tomorrow for annual predictions.
Tuesday, December 30, 2008
Consumer Confidence, Housing Collapse
While investors were busy buying up stocks (the only plausible reason would be a combination of short-covering and year-end window dressing by funds), a couple of economic reports sent shudders through the remainder of humanity.
First, the Conference Board's measure of consumer confidence sunk to an all-time low reading of 38 in December, from 44.7 in November. Somehow, the "experts" were expecting the reading to rise to 45. Apparently, the wizards of Wall Street weren't out shopping this Christmas season, or else they would have seen people shrugging off discounts of 50-60% or more and hanging on tightly to their purses and wallets.
The other report came in the housing arena, which hasn't had a dose of good news in well over a year now. The Case/Schiller 20-city index fell 18% in October, the worst decline since the index was launched in 2000. Prices are now said to be back to 2004 levels. While that may sound encouraging to some, anyone in the real estate business with half a brain realizes that prices began skyrocketing long before that, so there is likely to be a further decline ahead.
What most people fail to understand - beyond the government bailout money doing essentially nothing to alleviate the housing crisis - is that $2.2 trillion in ALT-A and ARM mortgages are due to re-set in 2009 and 2010. The number of foreclosures from this wave of defaults will extend the real estate and liquidity crisis to gigantic proportions. Subprime, in other words, was only the beginning.
But, stocks set sail higher from the outset and finished with strong gains.
Dow 8,668.39, +184.46 (2.17%)
NASDAQ 1,550.70, +40.38 (2.67%)
S&P 500 890.64, +21.22 (2.44%)
NYSE Composite 5,670.00, +135.36 (2.45%)
For the session (correction: tomorrow will be a full session, not a half session as I previously reported), advancers led decliners, 5134-1682, a very broad-based advance. New lows continued to dominate new highs, however, 240-25. Volume was light, and considerably better than Monday's pathetic no-show.
NYSE Volume 953,198,000
NASDAQ Volume 1,413,810,000
Crude oil futures for february took a 99-cent dip, closing at $39.03. Gold was also down slightly, losing $5.30, to $870.00. Silver (maybe the best investment of 2009) bucked the trend, gaining 17 cents, to $10.98.
Why silver for 2009? A couple of reasons are that all asset classes are going to get hit again in the coming year, but silver has already lost close to 50% from its high. There's also somewhat of a floor around $6, so prices, if they decline, should not go down much, whereas with gold, already inflated, could see $650. Also, silver is highly accessible to everybody. It's $10 or $11 per ounce, not $800. You can buy silver in multiple forms form multiple sources as well, so it may be the choice for small-time scroungers and fledgling investors, plus, it is readily liquidated. Those are some positive reasons beyond silver being well below the traditional gold-silver ratio.
If you can't buy gold, silver makes a nice substitute.
First, the Conference Board's measure of consumer confidence sunk to an all-time low reading of 38 in December, from 44.7 in November. Somehow, the "experts" were expecting the reading to rise to 45. Apparently, the wizards of Wall Street weren't out shopping this Christmas season, or else they would have seen people shrugging off discounts of 50-60% or more and hanging on tightly to their purses and wallets.
The other report came in the housing arena, which hasn't had a dose of good news in well over a year now. The Case/Schiller 20-city index fell 18% in October, the worst decline since the index was launched in 2000. Prices are now said to be back to 2004 levels. While that may sound encouraging to some, anyone in the real estate business with half a brain realizes that prices began skyrocketing long before that, so there is likely to be a further decline ahead.
What most people fail to understand - beyond the government bailout money doing essentially nothing to alleviate the housing crisis - is that $2.2 trillion in ALT-A and ARM mortgages are due to re-set in 2009 and 2010. The number of foreclosures from this wave of defaults will extend the real estate and liquidity crisis to gigantic proportions. Subprime, in other words, was only the beginning.
But, stocks set sail higher from the outset and finished with strong gains.
Dow 8,668.39, +184.46 (2.17%)
NASDAQ 1,550.70, +40.38 (2.67%)
S&P 500 890.64, +21.22 (2.44%)
NYSE Composite 5,670.00, +135.36 (2.45%)
For the session (correction: tomorrow will be a full session, not a half session as I previously reported), advancers led decliners, 5134-1682, a very broad-based advance. New lows continued to dominate new highs, however, 240-25. Volume was light, and considerably better than Monday's pathetic no-show.
NYSE Volume 953,198,000
NASDAQ Volume 1,413,810,000
Crude oil futures for february took a 99-cent dip, closing at $39.03. Gold was also down slightly, losing $5.30, to $870.00. Silver (maybe the best investment of 2009) bucked the trend, gaining 17 cents, to $10.98.
Why silver for 2009? A couple of reasons are that all asset classes are going to get hit again in the coming year, but silver has already lost close to 50% from its high. There's also somewhat of a floor around $6, so prices, if they decline, should not go down much, whereas with gold, already inflated, could see $650. Also, silver is highly accessible to everybody. It's $10 or $11 per ounce, not $800. You can buy silver in multiple forms form multiple sources as well, so it may be the choice for small-time scroungers and fledgling investors, plus, it is readily liquidated. Those are some positive reasons beyond silver being well below the traditional gold-silver ratio.
If you can't buy gold, silver makes a nice substitute.
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