Markets Will Hit More Lows Before They Bottom

This is the scariest market I have ever seen. How can anyone be expected to trust their investments when the market can drop 300 points in less than 30 minutes? Day after day after day this is happening, and if you’re wondering what the heck is going on, what’s causing this massive, never before seen volatility, here’s the answer.

The stock market is expecting something big to happen, and that something “big” is not a positive expectation. As I’ve been writing, the economists and Wall Street analysts are way off on how bad this economy is. It’s almost like they are forecasting a completely different economy, maybe on planet Utopia.

The economists' projections, 90% of them, are still projecting just mildly negative GDP growth for the next two to four quarters. What do you think they will do when they see consecutive quarters with -5% growth? That is, if the numbers that the government puts out can even be trusted. Much like they’ve done with the CPI, Unemployment and M1, our friendly government bean counters will likely find a way to massage the numbers so that we sheeple don’t become overly alarmed. Here’s the problem with putting out fake numbers: Mr. Market is a wise old man and sees through these shenanigans. The market will continue to sell off regardless of the cooked books that come out of Washington.

The Next Shoes to Drop

While the market may be able to continue some sort of weak seasonal bear market rally, I wouldn’t bet on it - or invest on it. If you own mutual funds or stocks that you don’t want to hold as the market drops to new lows, I would use this opportunity to either sell those positions or lighten up aggressively.

80% of our economy is based on consumption, and guess what? People are putting the brakes on their spending at a record pace. The money just isn’t there, the credit certainly isn’t there, and even if it were, people are very concerned about even having a job come 2009. Employers don’t like laying people off before Christmas, so look for massive layoffs starting January 1, 2009. Without the consumer supporting growth, the US economy is going to go into a death spiral.

This is what has the Federal Reserve and Treasury Dept. scared to death, and it’s why they have committed $7 trillion to try and keep this bubble inflated. The problem, however, is that they are only making the problem worse, and their playbook is straight out of the 1930s and Japan’s 1980s.

All of the bailout money is being wasted, and it’s happening with zero transparency. It’s absolutely mind boggling what Bernanke and Paulson, along with our corrupt politicians, are being allowed to get away with. This incestuous, criminal relationship is beginning to cause a groundswell of real anger like we haven’t seen in a long, long while. WHERE’S THE PERP WALK? It won’t be over until we have them, and have lots and lots of people locked up and the keys thrown away, at least in my opinion. People are mad as hell and just don’t want to take it any longer, at least that’s the way I feel, and I don’t think I am alone. Before it’s all over, we will be in debt well over $100 trillion (national debt, entitlements, deficit, etc), and the powers-that-be know that this is impossible to pay off, they just don’t want to see the implosion happen today. 5-10 years buys them some more time to escape, or so they think.

The next shoes to drop will be credit cards, commercial real estate, insurance companies, individual states, cities and municipalities. California has declared a fiscal emergency session of congress, and at least 15 states are bankrupt, not including their unfunded state pension liabilities. This is truly the perfect storm of the worst financial situation possible, and the tsunami that is headed our way is just getting started.

Credit card companies have started reducing/cancelling lines of credit, and the average consumer will find out the hard way in the first quarter of 2009. Commercial real estate has held up well until now but over $1 trillion in debt will have to roll over by mid-2009 and the bank loans simply won’t be there. Because insurance companies are the largest owners of commercial real estate, they will all be standing in line to receive hundreds of billions of taxpayers' money in 2009 as well. And I haven’t even mentioned the 3 bankrupt auto manufacturers that have combined debt in excess of $300 billion (which by the way is the same amount of debt that we just guaranteed for Citigroup (C)). The car companies will get enough money to make it at least a few more months until we’ve thrown enough good money after bad to realize that this country has no need for 3 terribly run major auto manufacturers.

Slowly but surely we are making colossal mistake after colossal mistake, and literally trillions of dollars in debt are being burned to a crisp right before our eyes. In good faith I cannot make a single recommendation outside of precious metals at this time. And, because the biggest current fear is deflation, even they aren’t going up in price right now. Once hyperinflation fears begin - and that day is most likely closer than we think - gold and silver will have their day in the sun. The timing is the only question here. It’s not a matter of if, but when.

I continue to believe that the market will hit new lows before we reach a bottom, and once this bear market rally is over, the next move down will be substantial. Could I be wrong? You bet I could, and when this becomes a bull market rather than a bear, we will be ready to buy - my shopping list is coming together nicely. For the first time in 50 years, the stock market's dividend yield is greater than the bond market, so this is clearly a positive. I’m just not at all confident that current dividends will remain at existing levels - they are being cut on a weekly basis by scores of companies. In the meantime, cash is king!

Disclosure: Long SDS.

Comments

[maverta:]

I love reading articles that predict a total collapse of everything but offer no suggestion on how to improve the situation. It's times like these where people become overly bearish that I will use to my advantage. While I don't agree on all the steps being taken by our govt, I do believe the sun will shine again because this is America. If you can't wake up in the morning with confidence things will get better, what is the point of breathing. As we get overly optimistic when thing are going good, we do the opposite when things turn down. I wonder what the author of this article was recommending 6 months ago when it appeared everyone was getting rich?

2008 Dec 05 05:58 AM

[maverta:]

After looking at Kip's bio, I see he was running money for a very large firm for 15 years. If it took him 15 years to raise $15 million, he should find another line of work. My daughter works on wall street and is in her middle 20's. after a couple years, she has managed to raise 3x that. don't believe everything you read and take it all with a grain of salt.

2008 Dec 05 06:02 AM

[maverta:]

meant to say $75 million.

2008 Dec 05 06:03 AM

[User 310490:]

Money, it seems to me, is like water, it's clean or it's tainted. It's a medium of exhange that is honest or dishonest. And a tainted well is no simple problem. What can be done when people/corporations lie about wealth?

JUst what has happened. Maybe things are as simple and as harmful as that. A New York business man loses money and calls it an "Act of God."
In what sort of give and take amongst decent folks would that be acceptable? We are so far removed from the basics of a functioning market place that it is as if we were on Mars. And we did it to ourselves.

The solution requires awareness, a sense of fitting into reality, and a real effort to quit conning each other, the way the banks are using the money for acquistions is a perfect exampole of what is wrong, and it is being done in the name of what is right. Maybe we are on Mars.

2008 Dec 05 06:50 AM

[CLH:]

Capitalism corrects itself. It always has and always will. The gov. trys to stop the correction. Thus the gov. is the problem not the answer.

2008 Dec 05 07:16 AM

[gca1:]

Someone in the new administration needs to establish criteria as to whic firms/states will be saved. This will be the most difficult decision the President Elect will face. He will be pressured by lobbyists and politicians to save everyone. Unfortunately, the more money the government prints, the worse the outcome might be. Once we reach the tipping point, the dollar will decline in value and commodities will soar. Therefore the government needs to be very conservative in printing more money, or we might face the deepest recession we have ever seen. Remember, there were those who thought the Titanic couldn't sink.

2008 Dec 05 08:20 AM

[growser7:]

User3104990:

Amen to that. Honesty and integrity, and the need to accept the limits of reality and the reality of limits. Real wealth isn't created by the click of a mouse. We've treated money with contempt, as if it is worthless---and that is what it will become.


On Dec 05 06:50 AM User 310490 wrote:

> Money, it seems to me, is like water, it's clean or it's tainted.
> It's a medium of exhange that is honest or dishonest. And a tainted
> well is no simple problem. What can be done when people/corporations
> lie about wealth?
>
> JUst what has happened. Maybe things are as simple and as harmful
> as that. A New York business man loses money and calls it an "Act
> of God."
> In what sort of give and take amongst decent folks would that be
> acceptable? We are so far removed from the basics of a functioning
> market place that it is as if we were on Mars. And we did it to ourselves.
>
>
> The solution requires awareness, a sense of fitting into reality,
> and a real effort to quit conning each other, the way the banks are
> using the money for acquistions is a perfect exampole of what is
> wrong, and it is being done in the name of what is right. Maybe we
> are on Mars.
>

2008 Dec 05 09:41 AM

[endoftheworld:]

this guy is funny :) ... why's he busy writing articles and not cowering in a bomb shelter? these clowns should put their money where their mouth is and short the hell out of the market.. problem is they're full of more bullshit than a bull... short term market prolly will go down, unemployment may hit 8-9%, but as soon as the real estate market bottoms out to below 2001 levels, buy anything in sight, or even before it... as art cashin said, problem with betting on the end of the world, is that it only happens once :)

2008 Dec 05 04:21 PM

[SeekingTruth:]

The author pretty much tells it like it is, sad to say . Bad news is seldom popular,or well received by the inattentive, but that is not it's purpose when it is true. We must first acknowledge that the problems exist, before we have any chance of solving and correcting them.

2008 Dec 05 04:34 PM

[DeanD:]

I agree with most of the article.
Many votes were purchased during the past election and when one looks at the future financial decision makers of this country (Frank, Dodd, Pulosi, Geithner and the like) I think we're in for some major wealth redistribution....Ever... is going to lose except the Gov. pension holders and entitlement folks.There will be no transparency (there never has been when the government is in charge of money ) and trillions will be wasted along with the long torture of "death by a thousand cuts (not tax of course)."We have been here before.
Basic economics always wins out...
IMHO

2008 Dec 05 07:35 PM

[kianator:]

The author need to look at the monthly/weekly charts of the S&P and Nasdaq and realize most institutional players do not stay negative (and NET SHORT) too long and do not take on too many new short positions when these charts have been basing at oversold levels in Oct/Nov. You just have to take profits and wait for the market to run up stocks back to longer-term trend lines (200 EMA Daily) before becoming more aggressive short wise.

The news is going to be attrocious throughout December just like today's jobs report, but the charts are still way too oversold to commit large sums of capital on the short side. Least path of resistance is up until trendline resitance is reached.

2008 Dec 05 09:47 PM

[neutrino23:]

endoftheworld:
"as soon as the real estate market bottoms out"

seekingalpha.com/artic...

Looks like by far the worst to come is in 2010 and 2011. ugh!

2008 Dec 08 12:38 AM