Monday, October 06, 2008

Well, What Do We Do Now?

I don't like to focus too much on intraday moves in the stock market, but today's move is pretty ugly. Right before the bailout was announced on Friday the stock market was sitting around 10,750 and we are now flirting with breaking 10,000 (actually - 9,840 now - down 8.5% since Friday afternoon). It's important to note that the stock market crossed that psychological 10,000 point level in April 1999. In effect, stocks have gone nowhere for 10 years. So despite what all the buy and hold pundits have told you, if you didn't trade this market you've lost a decade of investing while stuck on the US economic treadmill.

Quick observations -

1) The market wanted a coordinated rate cut and since it didn't get a rate cut people around the world sold stocks. Fear in the markets remains high (VIX back over 50) and any signal from the Fed Reserve that they might eventually give the markets what they want might lead to a violent rally. Absent a rate cut or some other "bailout", the markets look very weak here and the technicians (chart readers akin to tarot card readers in my book) control the markets right now and the charts look like we're going down another 15-20%.

2) If we finish below 10,000 expect the news cycle to be dominated by this story. CNN, MSNBC, FOX, etc, will be run a steady diet of Dow Crashing stories. 10,000 is not a particularly important number, but it does resonate with consumers so I'd expect it to make for good television. You heard it here first - Congress will be calling for hearings on the Bailout before the Bailout even starts! Congress was sold this deal on the premise that without it markets would crash. Guess what? Being down about 8% in about 4 hours of trading since the bill was passed might qualify for a mini-crash.

3) Consumer and Corporate Spending is coming to a screeching halt. A couple of related stories today speak to the grinding halt that has hit the US economy. It's mostly anecdotal right now, but the more people watch their 401k's shrink and as a greater proportion of their budgets goes to necessities like food and fuel, the less likely they are to go out and splurge on a new car or TV.

" In response to the falling value of their homes and high gasoline prices, Americans have become more frugal all year. But in recent weeks, as the financial crisis reverberated from Wall Street to Washington, consumers appear to have cut back sharply. Even with the government beginning a giant bailout of the financial system, their confidence may have been too shaken for them to resume their free-spending ways any time soon.

Recent figures from companies, and interviews across the country, show that automobile sales are plummeting, airline traffic is dropping, restaurant chains are struggling to fill tables, customers are sparse in stores.

When the final tally is in, consumer spending for the quarter just ended will almost certainly shrink, the first quarterly decline in nearly two decades. " NY Times

and on the Corporate side -

"Faced with squeezed credit and unpredictable sales, U.S. companies are bracing for budget cuts that could be far-reaching, painful, and in some cases unprecedented. Even before September's turmoil, Moody's predicted that corporate operating expenses—a proxy for budgets—would rise, on average, no more than 7% annually through 2012 across 59 industries, down from several consecutive quarters of double-digit gains.

A mediocre outlook has suddenly grown worse. "Just in the last two days, I have had clients rethinking not only their 2009 budgets but all the way to 2011," says Anthony D. Begando, founder and CEO of Tenon Consulting Solutions in Alpharetta, Ga." via Businessweek.

Look out below - Cheers!

1 comment:

Anonymous said...

Everyone knew the bailout wouldn't work, even the crooked politicians who decided to send every household an $18,000 tax bill even though economists told them it would not work.

Today's sell of is only a prelude to the real crash of over 20% that will come in the next week or so. Why? Just look at the history of the Great Crash of 29 and the crash of 87. Right now were only experience sell-offs before the real crash happens.

See my blog post here