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By Jim Wiandt
For those of you just waking up this morning, I should warn you that it's not going to be pretty today. Time to give up and cash out?
The FTSE 100 is down over 9%, the Nikkei dropped 7%, Dow futures are trading down about 500. Meanwhile OPEC announces slashed production and markets react by lopping another $4 per barrel off the price of oil down to $63 while again oddly, gold has dropped off a cliff, to $686 or so. You'd almost think it was time to buy Gold (GLD) if there weren't so many other values around.
Currencies have gone completely wacky, with the dollar at a 13 year low vs. the yen, at 95 yen to a buck, the dollar at a 5-year high of $1.55 vs. the divebombing British pound and at a 2-year high vs. the euro to $1.25.
As a sidenote for Gold and currency notes, my favorite, often referred to sites are The Bullion Desk and Oanda.com.
In short, things are looking as insane as they have in what has been a very, very crazy month of October. So were my Five Ways the Global Economy is on the Rebound blog complete lunacy?
Well, no. First let me clarify what I meant. What I did not mean is that the Dow is going to soar toward 15,000 in the next 6 months (or maybe even in the next 6 years). What I did mean (and Matt Hougan got this right in his follow-up) is that it appears to me that we are not headed into the Second World Depression. I mean (as Matt said) that the financial system seems to be stabilizing. And that is the big thing, the fundamental issue keeping things from finding some equilibrium.
And the TED spread has come way down from its peak. That, the LIBOR and Treasury rates are the key metric to look out to see how money can move around. I wouldn't be surprised to see it give back a little bit in the unease around plummeting equity markets, but fundamentally the banks have the cash and those who have taken money from the government have orders to put it to use.
So depression seems less likely, but strap on your seat belts, because this is going to continue to be a very rough ride in terms of volatility everywhere, and though the financial system appears it won't fail outright, I think we've got a long hard slog through a serious recession in front of us. Matt is right on that. Officially we'll almost certainly enter recession in 2009 (at least according to intrade, which has the probability of a recession in 2009 almost as high as the probability of an Obama victory in 2008).
Speaking of politics, here's an analysis of stock plays on a McCain or Obama win. It's interesting, but almost seems trite in the current market with great values seemingly in abundance.
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This article has 30 comments:
You guys are clueless if you think thinks are improving. We are in the throes of a major deleveraging and an unprecedented loss in the velocity of money. Money is not circulating and our money velocity is cratering. Fed wholesale dumping of cash is doing no good because that cash is immediately being "stashed" and hoarded. Unless people and banks start spending this money, we will continue to crash. Big downward moves like the market will show this morning do not help the sentiment of those with the money.
www.knology.net/~bilrum/keynes.htm
But the 'real' economy made up of the middle class, the majority being small business which creates the most jobs has been destroyed. Every other person I know is behind on bills, has low credit ratings and are petrified there next on the layoff block. And the true issue is that only half the overcapacity created from excess leverage has come off (as I anticipated would happen). The other half (total of 20+% from 2000) will be coming off over the next three years. The next formation of a bull market will be 2013 and that is if Washington can create jobs through upward mobility infrastructure programs.
I do believe you'll see private equity begin looking at early stage or start ups next year to begin to create innovation and jobs. That in and of itself will restore the economy at some point. If Washington if it is smart will incentivize this process. Washington should stop resisting the fact that Efficient Market has failed and consumers are already heading back to Save and Invest mode.
MONEY IS WORTHLESS!
Demand of finished goods dropped off a cliff. Ask any car/bestbuy/home/furni... driver/gasoline dealer.
This is the clearest indication that we're running headlong into a deflation.
And then fed's money lending/giving spree is getting stuck inside banks (shoring up balance sheet), recycled right back into buying treasuries, and fighting a losing battle with the amount of money currently evaporated by the deleveraging event.
Fed print about 2 trillion so far, which on it's own sounds like a lot. But the market's deleveraging lost more then 4 already (and perhaps 10 times that still not "reported" or in the pipelines).
Sounds like a losing battle to me.
I hear things like:
Equities/Gold/House/Ha... Asset is King.
all the time!
Unless there's mass delusion out there or I'm not invited to smoke something great.
What gives? (beyond random hope)
Thoughts?
It is a matter of short time only before we will see a dollar conversion(cash) into a dollar denominated assets -that includes the equities and the real estate(U.S).
Depression?it is a word coined by CNBC to attract the audience.
Recession? classical recession (two consecutive quarterly declines) will likely to be deflected .The FEd should cut FF another 50 bps.
The only thing that is restraining the major market rally is the mass psychosis/paralysis.
Sit back and relax.
The dollar strength is reflective of the global fears of the Armageddon outside the U.S.
One more time ,these record dollar inflows will shortly induce an unprecedented stock market really and meanigfull stability in the housing sector to be followed by the price spike in the real estate market.
This is history in making. The US GDP will attain 5% growth by the second half of 2009.-hard to believe?
Then againg I have predicted the current turmoil on the Bloomberg TV (Brian Sullivan) September18 /2007 (FED) -I was right.Now I am logical-and will be right.
because the guys on wall st. have no brains!just fancy suits,with relatives who got them thier overpaid,to put it midely,thier jobs.if they really cared,then how come they all take thier multi million dollar bonuses after costing people thier life's savings.here is the answer.
THEY DO NOT CARE ABOUT ANYONE BUT THIER LOUSY,STINKING,SELVES.
THEY ALL SUCK!!!
What is the fundamental driver for US growth in your upcoming boom?
Until you can answer that question, what you've described is only market psychology guesses.
1. Consumers are tapped out.
2. Housing as a growth engine is done, we've miraculously build so much houses that demand will be sated for a long time. Boomers are past their prime home-owning demographic peak and is going to downsize/cash-out going forward and act as a net drag on home values.
3. Export as a solution is completely toast. Rest of the world is in turmoil and cannot import our products with their demand nor buying power.
4. Debt as a money-infusing mechanism is done. We'll be lucky if it doesn't blow up in our face, let alone provide an engine for growth. A cousin of debt is the mandatory govt obligations (aka Social Security, Medicare) is also going to become a net drain on resources from the economy.
5. Boomers are moving more and more into sunset years, and that engine of net demand gain is becoming more a net demand drain.
Until you solve the fundamental economics problem, everything else is just building castle in the air.
A) WE are now the global flight to quality magnet attracting unprecedented dollar inflows which will be invested in the U.S assets/economy and create a record employment.
B)the current loss of jobs has to do with the issues that I have originally discussed with Mark Gilbert(Bloomberg -London) in June of 2005 and again repeated them on September 18 ,2007 (Brian Sullivan -FED Time) on Bloomberg TV.
Now ,we are looking at the early stages of the historically
relevan economic/market boom.
The only thing that we should fear is the fear itself.
Now that the U.S economy had become lean mean economic machine,we heading for an 'economic Nirvana".
Remember I have coined the word an economic Armageddon-now I am referring to the period ahead as an" economic Nirvana"-even as the psychosis grips the news media and the investors.
In fact the synonym for this unquantifiable uptrend will be Gabe.
"One more time ,these record dollar inflows will shortly induce an unprecedented stock market really and meanigfull stability in the housing sector to be followed by the price spike in the real estate market.
This is history in making. The US GDP will attain 5% growth by the second half of 2009.-hard to believe?"
I am putting a copy of this on my bulletin board and suggest you do the same, Gabe.
Your projection is similar to my most optimistic outlook, with the exception of time. My earliest 5% GDP is 2011 - 2012 time frame. I fear it might take longer.
The only think to fear is the fear itself and most CNBC reporters who perceive themselves as economists/traders and spew quantity of economic/analytical nonsense.
What to do? I suggest investors start putting their dream list together. For me it is well managed companies with a history of solid earnings who pay substantial dividends. Watch and wait and act when your gut and intelligence tells you it is time. When to buy? When they stop going down.
Once some clarity ( most likely gov proposals for the ST) is restored the flight of capital and confidence will slowly be restored there is no other choice - For me the stock market has been leading the way into the recession but no one knows the severity - sounds like an opportunity. Some stocks are at 15 year lows even with a cheaper dollar. In the end you don't have much of a choice when you are ignoring 5%-6% div yields on good companies. When you see the first M and A - watch the rush.
No one mentions that if the structure of the US business environ was changed with no cap gain, no div tax, reduction in bus spending, slashing gov payrolls, the dow would shoot to 13000 overnight and help gov revenue.But I am only reciting what we insist emerging markets do with our IMF parameters and bailouts all with a great history of success. The US gov and it's many minions in Congress do not take the medicine it doles out.
Public work projects like the bloated 18 billion BIG DIG does not get the 7 trillion in private money off the sidelines. With the exception of some canteen trucks private money does not invest alongside one-time boon doggle construction projects. They only buy votes -again history in Brazil, Arg, Korea bear this out.
Gabe. Bless you, I would wish you were right but I think we're still in for a bunch of hurt.
We can thank our hurt on the slime on Wall Street and in Washington. I'm talking about the fat cats on Wall St. (Not the everyday grunts like you and me that work there) and our self-serving congress. Neither of them feels badly over the situation because they're still living high on the hog and will continue to throughout and after this crisis. And what facinates me is that the American public will vote the same self-servers right back into congress. Wait and see!
Daytrader hit it on the nose: THEY DO NOT CARE ABOUT ANYONE BUT THIER LOUSY,STINKING,SELVES.
I've been an optimist my entire life but it's beginning to wear on me. Excluding the slimes mentioned above, the United States is still the greatest country in the world and it's Main Street that makes it that way.
Let's hope we handle the geopolitics with care this time around, I prefer avoiding Emporer Hirohito style resolution of cranking our GDP up to 75% for a third world war...
I see it from a human nature perspective, that the entire country's leadership is corrupt and inept from the House of Representatives whom are supposed to answer to it's citizenship to the celebrity CEO whom is supposed to answer to shareholders. To purge bad management in Washington which are the creators of fiscal crisis historically is a four year process. Cross-polination of boards that were supposed to bring the axe down on CEO's who were partaking or didn't understand risky ventures to protect the company will also take time to replace.
The reason I always rebuffed your "Bull is Coming Soon!" consistently for the last several months is for this reason and the other fact that none of us investors, economists etc except a handful of people at the Fed or Treasury had any clue as to toxic waste on the balance sheets. There was no real attempt at transparency and truth telling to the investor globally while there was time. Now it's a complete break-down of confidence and that also takes time to restore.
Now, the government may well attempt to continue to reinflate assets, but as they do it will have adverse affects on consumers which drives 70% of the economy as we saw in the last several months.
The focus of this government should be on those consumers on skilled job creation, reinstating regulations that protected investor and consumer alike and debt restructuring, also a regulatory problem for consumers. Then you will see a healthy financial system the world can trust again.
Again for the fifth time - my prediction for the next Bull market is 2013. At other times of fiscal crisis 1873, 1907 and 1929 you had temporary big upward swings in the stock market. I agree we'll see one in 2009 but it will not last and hence, NOT a sustained Bull market. Not coincidental is that voter revolutions where the retention rate of the House of Representatives was 70% or lower occured in 1877, 1911 and 1933. We'll see one in 2012 no doubt.
All of this does not mean that prudent investors won't find ways to make money. I assume the importance of the term 'due dilligence' will have renewed meaning in the next five years. But your generalized cheerleading that we are about to embark on one of the biggest Bull markets in the short or mid-term is dangerous advice. Stop it!