Stock Market Investor Depression

Spending almost every waking portion of my day studying the financial markets, it is almost impossible not to be in a state of complete depression. I honestly can’t remember the last time I saw any positive news reported, even on a local news channel. I can’t even imagine how this looks to a person that isn’t part of the financial community. They must think the entire world is completely out of its mind. My biggest concern is that no one, not even the “experts,” is predicting a turnaround any time soon. Some say that this is the sign of the “true bottom,” but as we become accustomed to hopelessness we could be looking at the exception to the rule.

At this point in time, I would say a majority of Americans have no idea what is going to lead us out of this gigantic mess. Contrary to what either side of the aisle or Wall Street says, we are encountering a total vacuum when we talk about leadership steering us out of this potential depression. Every single solution that is brought to the table makes me feel like I am living in 1909 Leningrad, not the United States (and that is with all due respect to what I’m sure is a great city). The new mortgage plan for instance is basically forcing Americans who have paid off their own mortgages to pay down the principal for those who are unable to manage their own lives.

That being said, as grim as the picture is (without sugarcoating), I do not believe that this is the end of the world, or that the end is in the near future. Time and again, America has overcome hardships, and it is time for people to start putting things into perspective before the media makes us feel like our only option is to jump off of the top of a building. During the Great Depression Americans were worried about putting food on the table, not whether or not they will be able to get a new flat screen television at Wal-Mart (WMT). Today, our relative “poor” are no longer consuming past their means, not worried about whether or not their family will starve. Unemployment could reach levels much higher than the current mid-seven percent, but at least we won’t be looking at 25% unemployment like during the Great Depression.

There are key steps being taken by businesses and consumers alike to re-align our economy, and set us back on course for economic growth. Businesses are becoming more “lean,” and that amazing co-worker, whom no one seems to know what he or she does during the day, has recently been released. On the other side of the equation, consumers will be the ones to lead us out of this recession, and will keep us from falling into a similar problem in the future. No one can argue that we have been spending beyond our means. I think many people confuse the deficit with our spending problem, but the real problem is who owes the debt. If an individual has income and the ability to pay off their loans, debt is not inherently a bad thing. The problem arises as job loss causes defaults to rise, which isn’t new news. The real question is what will people do in order to improve themselves for the future; but the discussion of education in this country is for a completely different article.

The last major concern that I have regarding a comeback in the equity markets is debt, but not in the sense that you may be imagining. I am talking about corporate debt, and the possibility that debt may become the new “sexy” equity. I know we all are not like Warren Buffett, most of us couldn’t be further from, but let's take a minute to analyze his actions. As of his last filing, Buffett has been selling equity stakes in companies and buying up debt. Most of this new debt Buffett is buying have guaranteed 10% coupons. I understand that this type of deal is not available to the ordinary individual investor, but the ordinary individual investor may be able to obtain returns of 4%, 5%, 6%, 7% etc. in the debt markets. If your 401K, IRA, and other savings were destroyed and you are starting again from ground zero, would you trust some of the crooks that are running this country? Would you take the risk of owning equities which contain several variables, or would you own debt for which the only thing you have to worry about is whether or not the company will exist when your debt matures? I’m no genius, but the second analysis sounds more logical considering the returns are much more stable and predictable. I’m not trying to cause a panic, but I believe we are more likely to see a debt bubble before we see another equity bubble.

Obviously, many questions remain, and I believe answers will only come with time. We need to see new accounting rules, shareholder and management interests re-aligned, better ethics and judgment, and about 400 other things. The good news is that for the most part we have defined the problem, and are realizing what we are up against.

Disclosure: The mutual fund the author is associated with is long WMT. The author is currently short Barack Obama, Timothy Geithner, Christopher Dodd, Nancy Pelosi, Barney Frank, the Republicans, the Democrats, the Congress, the Senate, NBC, ABC, CNN, CSPAN, FOX, the Stimulus, the Securities and Exchange Commision, and the FDIC but is long the American Spirit and People.

Comments

[Sean Butler:]

Leningrad didn't exist in 1909

Feb 24 05:19 PM

[Stone Fox C...:]

We're already seeing it but its mostly hidden by people focusing on lagging numbers. Like today, the talking heads on TV spend alot of time talking about the Dec home prices. Dec??? WTH! Can't we at least get mid-Feb numbers by now.

Leading indicators have been up for 2 months, Feb retail sales are up, and marketwatch.com had a nice artle on all the other positives in the market. Check out the comments on that article. The negativity is off the charts. People are always looking the wrong way in the market.

Feb 24 05:34 PM

[ROLEXDAYTONA:]

I am on the opposite short American people and spirit, USA was builded and founded on false ideology of opportunism in the worst meaning of this word, occupied Indians territory, I never was in US and never would go there even if forced to see this capitalism society built on stealing, corruption, wars, lies, slavery, racism.
You know, that 10% of your country control like 90% of all and everything, including you with your mortgage, debts.
This crisis will put America on dangerous path, path of revolution, hunger, unemployment, crime.
You was used to live on others people account, noy you must pay, your elite just sold you out to China, Asia, Saud...

Feb 24 05:51 PM

[James H. Wang:]

I'm glad that you have a lot of reasons to be optimistic.

Making U.S. businesses leaner, meaner, and more competitive is always a good thing, and the current downturn is giving even domestic businesses a swift kick is in the arse to get back to efficiency after years of easy money.

However, there are just as many businesses that are spending the money they should be using to retool, instead to LOBBY.

That's the danger. If instead of taking what benefits we can from this downturn (in crisis, there is opportunity, after all), economic populism instead rears its ugly head and beats the American economy to a pulp.

It's being held off so far, but the "Buy American" provision and likewise other protectionist measures looked at by the states and Congressmen are still looking rather threatening. Let's hope that someone will act as a voice of reason there.

Feb 24 06:04 PM

[Tesa:]

What is there to dislike by people sitting in front of computers trading all day to extract cash from the real working class and sell them to dogs and abuse them and block their access to health care and call it wonderful even though their rants have been rejected.

Of course they love the scheming and the follow that with ranting and give themselves thumbs up.

You capitalists are so wonderful and it shows.
rawstory.com/news/2008...

Feb 24 06:17 PM

[Owen:]

Haha! You are so funny. Nothing better than getting a historical perspective from a kid in his twenties.

> The author is currently short Barack Obama, Timothy Geithner, Christopher
> Dodd, Nancy Pelosi, Barney Frank, the Republicans, the Democrats, the
> Congress, the Senate,

Feb 24 06:24 PM

[Aristophanes:]

Which markets? The unregulated OTC shadow banking market where assets are allowed to languish off balance sheet?

Or that other market. You know? Te one where the SEC is strict with its patrols and enforcement, no one tries game or politically lobby (M2M) the rules, and the big players like Warren Buffet don't strike cozy deals at the expense of every other investor?

No one knows what we are up against. Someone broke the compass and it is foggy out, so there's a lot of hidden risk out there, looming like icebergs, mostly underwater.

Feb 24 06:37 PM

[LeoTheDog:]

Your disclosure statement is idiotic.

Feb 24 08:05 PM

[drone:]

Lose faith in many banks and bankers, lose faith in David Dreman, lose faith in central bankers, lose faith in our military commanders but don't lose faith in the country, its people and what it stands for.

Feb 24 09:16 PM

[otbricki:]

There were no official government unemployment numbers during most of the Great Depression. The US government did not start keeping these numbers until 1940, so your idea that current numbers are not on the same basis is not correct since there was no basis at all during that period. Economists are aware of this issue and use the same basis to perform comparisons in their publications.

In addition the composition of the current workforce is much different than in the 1930's because of the vastly increased number of families where both husband and wife work. Dual wage earners means that unemployment rates can be higher before the same level of pain is experienced.

I agree with you about the expanding gini coefficient in America. This is a huge issue - for the past 30 something years the American worker has not participated in the growth of the economy. Several factors have gone into that - education is becoming more important to earnings potential; the tax structure is very flat, and offshore competition limits wages. It is going to be difficult to change, but making that change will be key to preserving American society as we know it today.

As to Robert Schiller's graph - you can find the data here:

www.econ.yale.edu/~shiller/data/Fig2-1....

It looks to me like we have lost about 2/3's of what is needed to bring house prices to historical levels. Another 20% drop should be enough to get to historical trend levels.

On Feb 24 04:56 PM Gene Shorts wrote:

> Blah, another milquetoast article that espouses how the magnificient
> anglo-saxon economic ethic is going to lead us out of this mess.
> I'm glad the mandatory follow-up of Warren Buffet Gospel cake-icing
> was included. This article is not based in reality. You cannot
> really compare unemployment now vs. the great depression for two
> main reasons; one being that that increases in the unemployment rate
> have not shown any indication of slowing, so it is far too premature
> to compare the two. The second is that the unemployment rate the
> BLS uses now is significantly different than that of the great depression,
> which used broader terms to quanitfy unemployment. There are some
> very big reasons why the market increase we witnessed today will
> be short-lived. Bernanke indicated that there would be no swift
> or comprehensive approach to cleaning up the balance sheets of the
> nation's largest financial institutions, and given the amount of
> sludge that continues to toxify with erosion of collateral quality
> (Robert Schiller indicated last week that home prices are only halfway
> through their descent towards baseline levels, Meredith Whitney raised
> the likelihood of a decrease in 2 trillion of consumer lending in
> 09 and the commercial real estate market shoe is on the precipice
> of dropping), the forceful approach that is required to have any
> shot of containing this crisis is not likely to be implemented.
> The argument that the American consumer is going to pull us out of
> this predicament is laughable. The American consumer has no propensity
> to spend (based on the aforementioned wealth and credit deterioration,
> as well as a nearly 100% to GDP debt load). The retrenchement that
> began late last year is likely to continue and permanently alter
> the consumption habits of this country. Also, the consumer debt
> in the US is overwhelmingly focused at the low end of the economic
> spectrum. The expanding gini coefficient of this decade equates
> to a drowning lower-middle/underclas... that had been the backbone
> of the debt ridden consumer economy. I could go on about overseas
> problems with European banks, sovereign Euro States, treasury debt
> holders/buyers, but I think I've said enough. The central tenents
> of your arguments are bunk.

Feb 24 10:18 PM

[User64738:]

> On Feb 24 08:19 PM FreeMktFailure wrote:
>
> And all of you conveniently ignore socialism's great success, CHINA.

China is moving out of socialism, that's why they're becoming successful.
Socialism/communism never worked and never will. It's partly what got US in trouble too, we let government control things too much. All those supervisory agencies didn't do their jobs to protect Joe Sixpack (as Red Backman would say it), they turned a blind eye to their buddies mishaps and are doing it now too but not letting them go broke.
In other words, problem was never the free market, it was always lack of it and of course - the fractional reserve system.

Feb 24 10:19 PM

[@TexasER:]

On Feb 24 04:21 PM Jay wrote:

> I see absolutely no evidence of a bubble in any asset class right
> now, except perhaps gold and US treasuries.

I called equities a "bubble", but perhaps should not have. That term is too loaded. I was trying to say stocks are still way overvalued in my opinion.

And that at least through 2009, rallies will look like mini-bubbles that crash. Those rallies will not be driven by sound fundamentals, but rather by an irrational belief that it just can't go lower. And a fear of missing the bottom.

And Jay, the 3% rally today is not what I'm talking about. I apologize for not making this clearer.

Feb 24 10:35 PM

[Steve in Gr...:]

What is the Ultra Short ETF Obama? I need to put all my money there.

Feb 24 10:45 PM

[sr9web:]

Don't like the USA?
You can always get the hell out - any time you please...!!!


On Feb 24 03:11 PM User 270430 wrote:

> You could just as easily asked: "Is is time to lose faith in Capitalism?"
>
>
> For the 10 of millions of soon to be unemployed, assuming this is
> the Big One, the answer will be YES.

Feb 24 10:48 PM

[Sperry8:]

A junior in college telling us "I honestly can’t remember the last time I saw any positive news reported, even on a local news channel."?! I mean seriously... in your whole life of 19 yrs, of which maybe the last 5 you watched news TV and you can't recall eh? Please.... give me some bloggers on Seeking Alpha who have been through a bear before and spare us a smart, yet quite new financial student's ravings.

Feb 24 10:56 PM

[If U Say So:]

Check a newspaper. This is 2009. China is hardly a socialist nation any longer, or better put is that they've turned their back on most of their prior socialist ideals. They don't even provide unemployment unless its a foreign company operating in their country. In fact, that's the only place you will find unions also. They still do have some communist era government run companies but they are keen on closing them as private business picks up the employment. We certainly have far more socialist policies than today's China.


On Feb 24 08:19 PM FreeMktFailure wrote:

> You guys are fucking brainwashed by your 1) fortuitous time of birth
> and consequently random and lucky success in the "free market," or,
> as in the case of this author, your rich daddies. The free market
> is based on a pseudo-natural science, classical economics, that claims
> all sorts of BS, like humans collectively act rationally, and choices
> are made with perfect knowledge of the consequences. Remember the
> rippling devastation that happened as a consequence of Lehman? You
> are out of your god damn minds if you think that America would survive
> the failure of AIG, Citi, BofA, GE, GM, Wells Fargo, and so on and
> so forth. The market system, economists and the philosophy of wealth
> creation, have only really existed for about three or four centuries
> now, and you all state as a fact that the "free market" model, that
> worked for the priveleged few, is the word of god! Everything is
> f'ed up! The "free market" is free to kill itself, and it is! I hope
> the wealthy like high taxes because things will work out, with massive
> intervention, and huge taxes on the rich will pay for it.
>
> And all of you conveniently ignore socialism's great success, CHINA.

Feb 24 11:28 PM

[ScubaDude:]

On Feb 24 04:07 PM sauropod wrote:

> "like I am living in 1909 Leningrad"
>
> There was no Leningrad in 1909. Lenin didn't come to power till 1917,
> and the city's name was changed from Petrograd to Leningrad in 1924.
>
>
> Yeah, I'm a pedant.

There was no Petrograd in 1909, either. Before 1914, the city's name was St. Petersburg.

Feb 25 12:10 AM

[jeerio:]

Charles, Charles, Charles: you sound like a nice kid, but it's about time you accept the reality of life's ups and downs. we've abused and misused our system, and now the engine has seized. the amazing thing about it however, is that we will emerge stronger and better, but it will seem like an eternity to those who spend all their waking hours watching the pot to see if the water is boiling.

the time it will take is in proportion to two things: coordination of global efforts to prop up the broken institutions, and the amount of political will that can be garnered (as opposed to simple political obstruction)

lastly, i wouldn't worry too much that your comments here will produce a panic about a debt bubble.

Feb 25 12:32 AM

[henarl:]

The problem is not with the capitalist "system" it is with the human beings who are running it. Of all of the government systems tried so far by the human race, capitalism is probably the best. However, it will never achieve perfection because it depends on humans to operate it. There are very few Ghandis, Mother Teresas, Albert Schweitzers, or other truly altruistic people on this earth. A vast majority of the human race is far more concerned with short term advantage to themselves and their families than they are to the long term success of society or the human race.
Trying to change the system will be ineffective until such time as there is a basic change in the inherent human psyche, which may well be never.

Feb 25 01:00 PM

[Charles Pet...:]

I have to agree with your logic on this one bud. There is a reason millions of people attempt to immigrate to this country every year. Deep down every knows that the freedom that we have, especially in terms of business, is more desirable than any other situation across the globe. Obviously we have had our fair share of bad recently, but I'd rather take our "bad" than the rest of the world's "bad" any day of the week.


On Feb 24 03:16 PM user344210 wrote:

> I wish I could give your comment a few hundred thumbs down.
>
> Where in the wide world of sports do you find a better economic system
> than the free-market system? I've studied history intensely (have
> an MA and did most of the work toward a PHD in it before I decided
> on other pursuits) and the capitalist system is the only one that
> even comes close to working long-term. I'm no Pollyanna but things
> could be a LOT worse.

May 25 02:20 AM