Bed news for investors continued today, as the BLS released the Non-farms labor report for February, showing the nation lost another 651,000 jobs over the period. The Bureau also revised December and January figures even lower and boosted the official jobless rate to 8.1%, a further blow to confidence.
After gaining initially, the major indices soon feel into the red again, and stayed down most of the session, which was one of the more lackluster of recent vintage. At the end of the day, stocks rallied on a combination of short-covering, staking out of positions and a general oversold condition. It was not enough, however, to prevent the indices from falling for the 8th week out of nine so far in 2009.
Dow 6,626.94, +32.50 (0.49%)
NASDAQ 1,293.85, -5.74 (0.44%)
S&P 500 683.38, +0.83 (0.12%)
NYSE Composite 4,284.49, +16.89 (0.40%)
The Dow ended the session with 16 components up and 14 down, in line with the moderately higher closing figures.
Declining issues outweighed advancers, 3786-2782, so the buying which produced the gains was quite selective. New lows tallied 1684, to a mere 8 new highs. The disparity in the lows-highs this week has been the widest since the collapse back in the September-November wipeout of 2008. Volume was the among the highest of the week, indicating that there are still those who believe the worst is not over, and, alternately, a large share of bargain hunting.
NYSE Volume 1,771,049,000
NASDAQ Volume 2,489,014,000
Commodities were generally up, with oil gaining $1.91, to $45.52. Gold gained $14.90, recovering some of the ground lost over the past week's profit taking, to $942.70. Silver remained strong, adding 21 cents, to $13.33.
The late-day rally in stocks sets up an intriguing scenario for next week. In the absence of earnings reports from companies, the market will continue to focus on economic numbers and outside events.
Surely, employment will still be in focus. Any large-scale layoffs might spook already exhausted sellers, though if the news is more benign (and just about everyone believes the bad news has to take a break at some point), it could spark a fairly sharp rally. The global economy hasn't completely fallen off the cliff, so there are pockets of hope and some very attractive prices in stocks.
If anything, the market is more than overdue for a multi-week bounce to the upside. Of course, by April, the banks may be reporting the results of their government-sponsored "stress tests" and that should put the kibosh on any gains.
Sentiment remains stoic and bearish, but traders being the aggressive beasts they are, 1000 points to the upside in short order is not out of the question at this juncture.
Friday, March 6, 2009
Thursday, March 5, 2009
Stocks Routed Worldwide; NASDAQ Capitulates
Stock indices from Tokyo to Toronto suffered major losses again on Thursday as the global depression deepened and General Motors (GM) contemplated bankruptcy unless it receives additional financial support from the US government.
As the steady pounding continued, following the first gains in a week (yesterday), investors wiped out nearly double the amount of Wednesday's gains.
Dow 6,594.44, -281.40 (4.09%)
NASDAQ 1,299.59, -54.15 (4.00%)
S&P 500 682.55, -30.32 (4.25%)
NYSE Compos 4,267.60, -197.29 (4.42%)
There was no standout sector or industry spared from the widespread carnage, as the NASDAQ finally became the 4th major index to fall below the previous, November 20 lows. On that date, the NASDAQ closed at 1313. Today's close was 1% lower and comparable to October 2002 levels, when the NASDAQ bottomed out following the dotcom bust on October 9, at 1114.11.
As has been the case for months, US banks were at the center of the storm. Citigroup (C) traded below $1.00 for a brief time during the morning, closing down another 0.11, at 1.02. Bank of America (BAC) closed down 0.42, to 3.17, while JP Morgan Chase (JPM) tumbled 2.70, to 16.60. All of those were among the major losers of Dow components, though General Motors took the prize as the day's biggest, losing 0.34, to 1.86, a decline of 15.45%.
On the Dow, only 2 of 30 components gained ground. Pfizer (PFE) added 0.17, to 12.67. Wal-Mart (WMT) was up 1.26, to 49.75, as the nation's largest retailer saw improved same-store sales for February and increased its dividend to shareholders.
Market internals were a shambles, with decliners overwhelming advancing issues, 5823-842, a 7-1 ratio. New lows shot up to levels seen only in the September-November meltdown, with 1527 stocks reaching new 52-week lows versus only 7 new highs. Volume remained elevated, as it has over the past 7 sessions.
NYSE Volume 1,878,339,000
NASDAQ Volume 2,314,223,000
Oil futures were off $1.77, to $43.61. Gold emerged as a safe haven, up $21.10, to $927.80. Silver added 21 cents, to $13.12.
Prior to the opening bell on Friday, the Bureau of labor Statistics releases February Non-farm Payroll numbers. Expectations are for another 630,000 job losses.
As the steady pounding continued, following the first gains in a week (yesterday), investors wiped out nearly double the amount of Wednesday's gains.
Dow 6,594.44, -281.40 (4.09%)
NASDAQ 1,299.59, -54.15 (4.00%)
S&P 500 682.55, -30.32 (4.25%)
NYSE Compos 4,267.60, -197.29 (4.42%)
There was no standout sector or industry spared from the widespread carnage, as the NASDAQ finally became the 4th major index to fall below the previous, November 20 lows. On that date, the NASDAQ closed at 1313. Today's close was 1% lower and comparable to October 2002 levels, when the NASDAQ bottomed out following the dotcom bust on October 9, at 1114.11.
As has been the case for months, US banks were at the center of the storm. Citigroup (C) traded below $1.00 for a brief time during the morning, closing down another 0.11, at 1.02. Bank of America (BAC) closed down 0.42, to 3.17, while JP Morgan Chase (JPM) tumbled 2.70, to 16.60. All of those were among the major losers of Dow components, though General Motors took the prize as the day's biggest, losing 0.34, to 1.86, a decline of 15.45%.
On the Dow, only 2 of 30 components gained ground. Pfizer (PFE) added 0.17, to 12.67. Wal-Mart (WMT) was up 1.26, to 49.75, as the nation's largest retailer saw improved same-store sales for February and increased its dividend to shareholders.
Market internals were a shambles, with decliners overwhelming advancing issues, 5823-842, a 7-1 ratio. New lows shot up to levels seen only in the September-November meltdown, with 1527 stocks reaching new 52-week lows versus only 7 new highs. Volume remained elevated, as it has over the past 7 sessions.
NYSE Volume 1,878,339,000
NASDAQ Volume 2,314,223,000
Oil futures were off $1.77, to $43.61. Gold emerged as a safe haven, up $21.10, to $927.80. Silver added 21 cents, to $13.12.
Prior to the opening bell on Friday, the Bureau of labor Statistics releases February Non-farm Payroll numbers. Expectations are for another 630,000 job losses.
Wednesday, March 4, 2009
Bargain Hunters and Bottom Fishers
After a rocky start, US stock indices finally put in a day of solid gains, thanks in large part from the seemingly never-ending supply of optimists seeking bargains after stocks plunge to new lows.
By no means is the recession or the drumbeat of downbeat economic news subsiding. In fact, this latest round of selling - pushing to Dow, S&P and NYSE Comp. to 12-year lows - was possibly the most brutal and merciless yet. Even today, the news was decidedly bad. The ADP Employment Report for February showed that another 697,000 private sector jobs were lost in the month of February. In the good-producing sector, it was the 26th consecutive month of US job losses; manufacturing fell for the 36th straight month, according to the firm.
Inside ADP's numbers was an alarming revelation: that most of the losses were from medium and small firms employing less than 500 individuals. The takeaway was that job-chopping by major firms has peaked, but now the recession is spreading down to smaller firms, even to the very mom-and-pop type small businesses that are the backbone of the economy.
For Wall Street, those figures, coupled with an oversold condition in the market, provided enough of a green light to let the bargain hunters loose, boosting stocks in an overdue, broad rally. At 2:00 pm, the Fed released the Beige Book, an anecdotal accounting which showed economic conditions deteriorating across all 12 regions.
That didn't dampen the mood much, until late in the session, when the Dow shed nearly 100 points in the last 20 minutes of trading.
As the Dow goes, it came just short of the new psychological barrier at 7000, paused and then fell away. That late-day downturn is surely cause for concern going forward, though if the 7000 level is breached, there's not much in the way of resistance until the 8000 level, so the opportunity for a short-term rally exists over the next four to six weeks.
Of course, there are still hurdles to overcome, and the chance that another bank may blow up or some other circumstance contribute to the overall malaise is paramount.
Dow 6,875.84, +149.82 (2.23%)
NASDAQ 1,353.74, +32.73 (2.48%)
S&P 500 712.87, +16.54 (2.38%)
NYSE Composite 4,464.89, +130.19 (3.00%)
Twenty-five of thirty Dow components sported gains, but the five which suffered losses revealed quite a bit about the overall tone of trading. Bank of America (BAC), Citigroup (C), American Express (AXP), General Electric (GE) and JP Morgan Chase (JPM) all have one thing in common. They are either banks or substantially tied to finance in their business operations. JPM took the biggest hit of all, down 8.14%, closing at 19.30, -1.71. The major banks still have unresolved issues and most of them relate back to derivatives and credit default swaps in the black hole of AIG.
Market internals were largely in line with the closing numbers. Advancers clobbered losers for the first time in over a week, 4955-1639. New lows moderated back to 676, though only three (3) stocks reached new highs. Volume remained at the elevated levels of the past week.
NYSE Volume 1,796,873,000
NASDAQ Volume 2,349,450,000
Oil ramped up on news of a surprise drawdown in US supply. Crude futures for April delivery gained $3.73, to $45.38. Gold continued losing, down another $6.90, to $906.70. Gold has lost nearly $100 in just over a week's time. Silver fared better (somebody is obviously taking my advice), gaining 20 cents to $12.92, still bargain territory (under $13 per ounce).
Optimism was abundantly everywhere. All commodity prices were up sharply with the notable exception of gold. This is likely an aberration, as is the stock market move, though there is a technical set-up for a short term bounce.
Stay tuned.
By no means is the recession or the drumbeat of downbeat economic news subsiding. In fact, this latest round of selling - pushing to Dow, S&P and NYSE Comp. to 12-year lows - was possibly the most brutal and merciless yet. Even today, the news was decidedly bad. The ADP Employment Report for February showed that another 697,000 private sector jobs were lost in the month of February. In the good-producing sector, it was the 26th consecutive month of US job losses; manufacturing fell for the 36th straight month, according to the firm.
Inside ADP's numbers was an alarming revelation: that most of the losses were from medium and small firms employing less than 500 individuals. The takeaway was that job-chopping by major firms has peaked, but now the recession is spreading down to smaller firms, even to the very mom-and-pop type small businesses that are the backbone of the economy.
For Wall Street, those figures, coupled with an oversold condition in the market, provided enough of a green light to let the bargain hunters loose, boosting stocks in an overdue, broad rally. At 2:00 pm, the Fed released the Beige Book, an anecdotal accounting which showed economic conditions deteriorating across all 12 regions.
That didn't dampen the mood much, until late in the session, when the Dow shed nearly 100 points in the last 20 minutes of trading.
As the Dow goes, it came just short of the new psychological barrier at 7000, paused and then fell away. That late-day downturn is surely cause for concern going forward, though if the 7000 level is breached, there's not much in the way of resistance until the 8000 level, so the opportunity for a short-term rally exists over the next four to six weeks.
Of course, there are still hurdles to overcome, and the chance that another bank may blow up or some other circumstance contribute to the overall malaise is paramount.
Dow 6,875.84, +149.82 (2.23%)
NASDAQ 1,353.74, +32.73 (2.48%)
S&P 500 712.87, +16.54 (2.38%)
NYSE Composite 4,464.89, +130.19 (3.00%)
Twenty-five of thirty Dow components sported gains, but the five which suffered losses revealed quite a bit about the overall tone of trading. Bank of America (BAC), Citigroup (C), American Express (AXP), General Electric (GE) and JP Morgan Chase (JPM) all have one thing in common. They are either banks or substantially tied to finance in their business operations. JPM took the biggest hit of all, down 8.14%, closing at 19.30, -1.71. The major banks still have unresolved issues and most of them relate back to derivatives and credit default swaps in the black hole of AIG.
Market internals were largely in line with the closing numbers. Advancers clobbered losers for the first time in over a week, 4955-1639. New lows moderated back to 676, though only three (3) stocks reached new highs. Volume remained at the elevated levels of the past week.
NYSE Volume 1,796,873,000
NASDAQ Volume 2,349,450,000
Oil ramped up on news of a surprise drawdown in US supply. Crude futures for April delivery gained $3.73, to $45.38. Gold continued losing, down another $6.90, to $906.70. Gold has lost nearly $100 in just over a week's time. Silver fared better (somebody is obviously taking my advice), gaining 20 cents to $12.92, still bargain territory (under $13 per ounce).
Optimism was abundantly everywhere. All commodity prices were up sharply with the notable exception of gold. This is likely an aberration, as is the stock market move, though there is a technical set-up for a short term bounce.
Stay tuned.
Tuesday, March 3, 2009
Weary Market Stuck on Red
Stocks zig-zagged across the unchanged line on Tuesday, with investors assessing the damage from Monday's drama.
There were equal amounts of bargain-hunting and hand-wringing as the major indices registers small losses, but overall, there was no good new upon which to launch any meaningful rally.
Housing data - which crossed the wires at 10:00 am - sparked more selling, as the numbers were far worse than even the most dismal expectations. New home sales for January fell 7.7%; construction spending dropped 3.3% for the same period.
Following those figures were numbers from the major auto makers, which posted the worst sales declines since the economy began to really sour in September of 2008.
Compared to the same period one year ago, General Motors (GM) said their light-vehicle sales dropped 53% in February, while Ford's declined 48%, with Toyota posting a 40% drop.
Ford's car sales dropped 48%, with sport-utility vehicles off a whopping 71%. Toyota's car sales fell 36%; GM's were off 50%.
Apparently, traders were too worn out from Monday's rout to engage in yet another sell-off session.
Dow 6,726.02, -37.27 (0.55%)
NASDAQ 1,321.01, -1.84 (0.14%)
S&P 500 696.33, -4.49 (0.64%)
NYSE Composite 4,334.70, -26.28 (0.60%)
Declining issues outweighed advancers, 4274-2343. New lows continued to dominate over new highs, as investors continued shedding outright losers, 1512-15. Volume was still very high, despite the minor movement in the market.
NYSE Volume 1,825,373,000
NASDAQ Volume 2,368,833,000
Oil gained $1.50, to $41.65. Gold tumbled $26.40, to 913.60; silver continued to correct, down 36 cents, at $12.72.
In another note on what I have coined the Post-Government Era, Pat Buchanan recently penned an interestingly-titled essay in which he correctly points out just how brutally federal, state and local taxes are bearing down on working, productive Americans. Mr. Buchanan fails to cross the line - in Pitchfork Time - from conjecture to the outright rebellion the title suggests, placing most of the blame on President Obama's budget proposal rather than rightfully on the monstrous policy decisions at every level of government over the course of the past 30 years.
While Buchanan may be stirring up the spirits of rebellion, he's dead on when it comes to the issue of taxation. Americans are being taxed out of their jobs, homes and security, though this condition has been existent for many years.
The current economic climate has only recently awakened the slumbering US middle class, though by many accounts, it's already too late.
Dow components finished with 17 up and 13 down. All the major indices extended their nearly 12-year lows.
There were equal amounts of bargain-hunting and hand-wringing as the major indices registers small losses, but overall, there was no good new upon which to launch any meaningful rally.
Housing data - which crossed the wires at 10:00 am - sparked more selling, as the numbers were far worse than even the most dismal expectations. New home sales for January fell 7.7%; construction spending dropped 3.3% for the same period.
Following those figures were numbers from the major auto makers, which posted the worst sales declines since the economy began to really sour in September of 2008.
Compared to the same period one year ago, General Motors (GM) said their light-vehicle sales dropped 53% in February, while Ford's declined 48%, with Toyota posting a 40% drop.
Ford's car sales dropped 48%, with sport-utility vehicles off a whopping 71%. Toyota's car sales fell 36%; GM's were off 50%.
Apparently, traders were too worn out from Monday's rout to engage in yet another sell-off session.
Dow 6,726.02, -37.27 (0.55%)
NASDAQ 1,321.01, -1.84 (0.14%)
S&P 500 696.33, -4.49 (0.64%)
NYSE Composite 4,334.70, -26.28 (0.60%)
Declining issues outweighed advancers, 4274-2343. New lows continued to dominate over new highs, as investors continued shedding outright losers, 1512-15. Volume was still very high, despite the minor movement in the market.
NYSE Volume 1,825,373,000
NASDAQ Volume 2,368,833,000
Oil gained $1.50, to $41.65. Gold tumbled $26.40, to 913.60; silver continued to correct, down 36 cents, at $12.72.
In another note on what I have coined the Post-Government Era, Pat Buchanan recently penned an interestingly-titled essay in which he correctly points out just how brutally federal, state and local taxes are bearing down on working, productive Americans. Mr. Buchanan fails to cross the line - in Pitchfork Time - from conjecture to the outright rebellion the title suggests, placing most of the blame on President Obama's budget proposal rather than rightfully on the monstrous policy decisions at every level of government over the course of the past 30 years.
While Buchanan may be stirring up the spirits of rebellion, he's dead on when it comes to the issue of taxation. Americans are being taxed out of their jobs, homes and security, though this condition has been existent for many years.
The current economic climate has only recently awakened the slumbering US middle class, though by many accounts, it's already too late.
Dow components finished with 17 up and 13 down. All the major indices extended their nearly 12-year lows.
Monday, March 2, 2009
Deflation, Depression Drumbeat
Everybody Limbo! How low can she go?
Today's closing numbers, seen below, are close to those levels, so the financial news junkies will be saying the stocks fell to their lowest levels since 1997, or the worst in 12 years.
Dow 6,763.29, -299.64 (4.24%)
NASDAQ 1,322.85, -54.99 (3.99%)
S&P 500 700.82, -34.27 (4.66%)
NYSE Composite 4,360.99, -256.04 (5.55%)
These kinds of comparisons serve almost no useful purpose, except to jangle our memories to recall what life was like back then. Here's an idea. Tiger Woods was in his first year as a professional golfer. Since then, Tiger's done well by simply plying his craft and parlaying his popularity into lucrative endorsement deals.
The point is that investing - especially in times like these - is not for everyone, while working hard and seizing the financial opportunities that may present themselves is probably a more fundamentally sound plan. Saving 10% of your income doesn't hurt either.
What is more useful is looking at the relative price/earnings ratios and dividend yields during boom and bust periods. Conventional wisdom dictates that stocks are risky when p/e ratios are above the 12-15 range and good buys when they are 5-10. The bottom comes when these ratios reach a cumulative 5-7. They are currently around 8-10, so the bottom is close at hand, numbers-wise.
As for dividend yields, a 7% compounded return doubles your money in 10 years, but with interest rates running at or close to historic lows, anything over 7% should be viewed with some degree of skepticism. Either the underlying stock is still falling or the dividend may, at some point in the not-so-distant future, be cut.
Either case will dampen your overall return, so stocks which are paying a dividend yield around 3-5% are likely to be good bets. Their price may improve (or not fall much more) and their dividends are likely to remain intact.
While I think it is still too early to call a bottom of any sort or time period, I am on record for calling the bottom at Dow 5267 sometime later this year, probably between August and November. Noting that, I may be completely wrong. We may be only at the beginning of a period of prolonged economic distress, in other words, a Depression-like decline.
Some are calling for the Dow to fall to 4000, others, below that. Remember that during the Great Depression, which lasted anywhere from 8 to 10 years, from 1929 to 1938, stocks lost 90% of their value. The very worst years of the depression, from a day-to-day "life sucks" standpoint, was from 1931 to 1935, when unemployment peaked and remained high and death, disease and rampant poverty was the order of the day.
Back in the 30s, people starved, froze to death, and suffered from a wide assortment of maladies many of which today have been eradicated by modern medicine. Considering the dynamic economy in which we live and the incredible amount of government aid available, it seems unlikely that many today will stave or freeze, though many will die of heat stroke, especially the elderly who try to save on cooling costs by turning their air conditioning off during the summer.
While I continue daily to paint this "doom and gloom" scenario, be reminded that today's calamity was caused by just one more market event - AIG's announced $61 billion loss in the last quarter and the government throwing another $30 billion at the company. Somebody please tell me how any company can lose $61 billion in 3 months time. On one hand, it's ludicrous and without precedent. On the other hand, how much of these "losses" are merely papering over a bottomless pit of credit default swaps and other cross-party derivatives.
AIG was the king of insurance and the leader in CDS, which are essentially insurance against bond defaults. With defaults still at inordinately-high levels (and growing, according to some), AIG doesn't have to funds to cover their own bad paper. AIG is no sideshow to the banking crisis, it is at the heart of the crisis.
Until AIG's problems are solved, or until the government comes up with a better idea than to just continue pumping good money down a sinkhole, nothing will change. Wall Street banks and AIG blew up the world financial system and there needs to be a fundamental shift in how the system works. Investigations of the CEOs and other executives at the tops of the firms are necessary, and they should lead to prosecutions and jail for the perpetrators, many of them household names by now.
The point is that bad news continues, unabated, nearly every day. This week will be no different. Tuesday, auto and truck sales for February; Wednesday, private job loss numbers are released by ADP; Thursday, new unemployment claims; Friday, Labor Department's Non-Farm Payrolls. All of the figures are predicted to be dire, so any hope for a rally needs to be moved back a few weeks, or months, or years.
On the day, one of the most one-sided ever witnessed, declining issues beat advancers by a stunning 9-1 ratio, 6036-675. New lows danced on the graves of new highs, 1479-11. Volume was again very high, as investors scramble to get out of way of the rampaging avalanche of burning paper holdings.
NYSE Volume 1,967,912,000
NASDAQ Volume 2,336,813,000
Not a single Dow component registered a gain. The worst were Citigroup (C) 1.30, -0.20, -20.00%; General Electric (GE) 7.60, -0.91, -10.61%; Alcoa (AA) 5.49, -0.74, -11.88%; General Motors (GM) 2.01, -0.24 -10.67; American Express (AXP) 11.06, -1.00, -8.29; Caterpillar 22.17, -2.44, -9.91% and Bank of America (BAC) 3.63, -0.23, -8.10.
Commodities exhibited all the symptoms of a deflationary spiral. There was no one single commodity higher on the day. From natural gas to coffee to feeder cattle, everything was down. Oil got hammered on persistent demand concerns, down $4.61, to $40.15. The precious metals fared better than most, but still, gold lost $2.50, to $940.00. Silver lost just 2 cents, to $13.07.
Today was one of the most disheartening in a series of such. Nothing, not the government, nor Warren Buffett, nor Barack Obama, nor the Fed can stop the freight train of deflation, wealth destruction and decline.
We might as well accept the facts: We are already in a depression. We are beyond the state of denial. No investment is safe.
- On April 28, 1997, the Dow closed at 6783.02
- November 1, 1996, the S&P closed at 703.77
- The NYSE Composite closed at 4378.48 on February 11, 1997
- The NASDAQ is still above its November 20, 2008 close at 1313, so, after that, the next closing low will be May 2, 1997, at 1305.33
Today's closing numbers, seen below, are close to those levels, so the financial news junkies will be saying the stocks fell to their lowest levels since 1997, or the worst in 12 years.
Dow 6,763.29, -299.64 (4.24%)
NASDAQ 1,322.85, -54.99 (3.99%)
S&P 500 700.82, -34.27 (4.66%)
NYSE Composite 4,360.99, -256.04 (5.55%)
These kinds of comparisons serve almost no useful purpose, except to jangle our memories to recall what life was like back then. Here's an idea. Tiger Woods was in his first year as a professional golfer. Since then, Tiger's done well by simply plying his craft and parlaying his popularity into lucrative endorsement deals.
The point is that investing - especially in times like these - is not for everyone, while working hard and seizing the financial opportunities that may present themselves is probably a more fundamentally sound plan. Saving 10% of your income doesn't hurt either.
What is more useful is looking at the relative price/earnings ratios and dividend yields during boom and bust periods. Conventional wisdom dictates that stocks are risky when p/e ratios are above the 12-15 range and good buys when they are 5-10. The bottom comes when these ratios reach a cumulative 5-7. They are currently around 8-10, so the bottom is close at hand, numbers-wise.
As for dividend yields, a 7% compounded return doubles your money in 10 years, but with interest rates running at or close to historic lows, anything over 7% should be viewed with some degree of skepticism. Either the underlying stock is still falling or the dividend may, at some point in the not-so-distant future, be cut.
Either case will dampen your overall return, so stocks which are paying a dividend yield around 3-5% are likely to be good bets. Their price may improve (or not fall much more) and their dividends are likely to remain intact.
While I think it is still too early to call a bottom of any sort or time period, I am on record for calling the bottom at Dow 5267 sometime later this year, probably between August and November. Noting that, I may be completely wrong. We may be only at the beginning of a period of prolonged economic distress, in other words, a Depression-like decline.
Some are calling for the Dow to fall to 4000, others, below that. Remember that during the Great Depression, which lasted anywhere from 8 to 10 years, from 1929 to 1938, stocks lost 90% of their value. The very worst years of the depression, from a day-to-day "life sucks" standpoint, was from 1931 to 1935, when unemployment peaked and remained high and death, disease and rampant poverty was the order of the day.
Back in the 30s, people starved, froze to death, and suffered from a wide assortment of maladies many of which today have been eradicated by modern medicine. Considering the dynamic economy in which we live and the incredible amount of government aid available, it seems unlikely that many today will stave or freeze, though many will die of heat stroke, especially the elderly who try to save on cooling costs by turning their air conditioning off during the summer.
While I continue daily to paint this "doom and gloom" scenario, be reminded that today's calamity was caused by just one more market event - AIG's announced $61 billion loss in the last quarter and the government throwing another $30 billion at the company. Somebody please tell me how any company can lose $61 billion in 3 months time. On one hand, it's ludicrous and without precedent. On the other hand, how much of these "losses" are merely papering over a bottomless pit of credit default swaps and other cross-party derivatives.
AIG was the king of insurance and the leader in CDS, which are essentially insurance against bond defaults. With defaults still at inordinately-high levels (and growing, according to some), AIG doesn't have to funds to cover their own bad paper. AIG is no sideshow to the banking crisis, it is at the heart of the crisis.
Until AIG's problems are solved, or until the government comes up with a better idea than to just continue pumping good money down a sinkhole, nothing will change. Wall Street banks and AIG blew up the world financial system and there needs to be a fundamental shift in how the system works. Investigations of the CEOs and other executives at the tops of the firms are necessary, and they should lead to prosecutions and jail for the perpetrators, many of them household names by now.
The point is that bad news continues, unabated, nearly every day. This week will be no different. Tuesday, auto and truck sales for February; Wednesday, private job loss numbers are released by ADP; Thursday, new unemployment claims; Friday, Labor Department's Non-Farm Payrolls. All of the figures are predicted to be dire, so any hope for a rally needs to be moved back a few weeks, or months, or years.
On the day, one of the most one-sided ever witnessed, declining issues beat advancers by a stunning 9-1 ratio, 6036-675. New lows danced on the graves of new highs, 1479-11. Volume was again very high, as investors scramble to get out of way of the rampaging avalanche of burning paper holdings.
NYSE Volume 1,967,912,000
NASDAQ Volume 2,336,813,000
Not a single Dow component registered a gain. The worst were Citigroup (C) 1.30, -0.20, -20.00%; General Electric (GE) 7.60, -0.91, -10.61%; Alcoa (AA) 5.49, -0.74, -11.88%; General Motors (GM) 2.01, -0.24 -10.67; American Express (AXP) 11.06, -1.00, -8.29; Caterpillar 22.17, -2.44, -9.91% and Bank of America (BAC) 3.63, -0.23, -8.10.
Commodities exhibited all the symptoms of a deflationary spiral. There was no one single commodity higher on the day. From natural gas to coffee to feeder cattle, everything was down. Oil got hammered on persistent demand concerns, down $4.61, to $40.15. The precious metals fared better than most, but still, gold lost $2.50, to $940.00. Silver lost just 2 cents, to $13.07.
Today was one of the most disheartening in a series of such. Nothing, not the government, nor Warren Buffett, nor Barack Obama, nor the Fed can stop the freight train of deflation, wealth destruction and decline.
We might as well accept the facts: We are already in a depression. We are beyond the state of denial. No investment is safe.
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