Today I look at the economic conditions of a year ago as presented by Fed Chief Bernanke in his semiannual testimony, compare these conditions versus today, and look at the major averages.
I suggest that everyone read Bernanke’s semiannual testimony from a year ago.
Not much has changed since then, but I argue that things have deteriorated. It was a year ago when Treasury Secretary Paulson told us that the first stimulus would create 500,000 new jobs as tax rebates were being dropped from helicopters.
It was a year ago Ben Bernanke did not recognize that the US economy was already in recession. He called for below trend economic growth in the second half of 2008. Nonfarm payrolls were declining at a monthly average of 94,000 jobs per month. The unemployment rate was 5.5%.
Bernanke talked about new rules on mortgage lending and credit card abuses – all talk, no action!
Bernanke’s inaccurate assessment a year ago was viewed by the markets as a signal for a second half 2008 economic recovery and a return of a bull market for stocks.
I was still calling for worsening economic conditions. With the Dow at 11,850 in mid-August, I re-iterated my call for recession and a test of 10,767 in the second half.
Economic and market calls from the consensus are similar today as they were a year ago. Experts say that the recession ended in June / July and most S&P year end price targets are above 1050.
I have to be the contrarian again with unemployment at 9.5% and rising, and hours worked at a record low and declining. Consumer confidence readings are well below the low end of the neutral zone of 90 to 120.
Weekly Initial Jobless Claims are well above the recessionary 350,000, capacity utilization is at a record low, ISM readings remain below 50, and housing data remain at depression levels.
Economic models that have worked in past cycles will not work during “The Great Credit Crunch” because there’s not a model on the planet that predicted the extent of the current economic dilemma.
I can’t deny that technicals are positive for stocks, but valuations are not.
A major cliché “there’s a lot of money on the sidelines” will not play on Main Street, as the money sidelined is less than the losses in retirement accounts and home equity combined.
The decline in net worth far exceeds that so-called money on the sidelines. Investors, who captured a portion of the 40% to 50% rally since March 6th, should now be conservative and not listen to the bullish hype seen in the financial media. We’ve seen that before in October 2007, and several times since.
The major equity averages straddled this week’s resistances for the Dow, S&P 500 and NASDAQ.
The Dow is still below its June 11th high of 8877.93 with its January high at 9,088.06. Weekly and daily pivots are 8824 and 8,886 with the 38.2% retracement level at 9,388.
For the Dow, my annual pivot is 910.8 with the June 11th high of 956.23 and my weekly and annual resistances are 957.9 and 967.1. The 38.2% retracement is 1007.
The NASDAQ is at a new high for the year on Monday with this week’s resistance at 1969, which seems like a moon shot.
Have a great day.
Disclosure: no positions