What is the Stock Market Trying to Tell Us?


Everyone wants to know whats up with the crazy stock market? Up 200 points one day, down 200 points the next. The news was never that good or that bad, so why the neck snapping reversals?

Some experts are calling this the stock market death rattle, a violent spasm just before the crash. There’s also talk of a double dip recession. Either way it could spell disaster for the average family. Currently the DOW is down 313 points! Was this dip in response to President Obama’s speech? No doubt it helped triggered it, but there’s a lot more to this plunge than just Obama’s spending policies.

There are a number of key market indicators we can still rely on for the truth. If we look past the DOW index, which is only flimsy evidence at best of what is really taking place, we might find a lot more clarity of where we are headed. And we sure could use some clarity!


Housing is the big guy of all market indicators – housing has slowed its plunge (good) into a mild retreat (not so good). Forecasts, however, show no real relief in sight for several years (bad). The Feds lowered the amount of home loans they will buy back from the banks by $104,000. That puts a huge damper on upper end purchases. Banks are also very gun shy about making new home loans after the beating they took – consider this a major red flag for all of 2011 and 2012.

Despite the lowest borrowing rate ever, financial institutions are stuck and can’t leverage off cheap money to get out of the hole. Bank of America is fairly typical of the big banks and its stock is trading off 50% from its low price of 6 months ago to paltry $7 a share today. Another red flag.

Consumer confidence polling shows a remarkable lack of confidence and this translates to a lack of spending. The only green area here was in new car sales and that was only a modest gain. Look beyond that one area and the overall pattern is firmly negative. Polling shows more Americans now than at any other time are concerned about the national debt and persistent overspending by big government. These red flags are starting to look like a bouquet.

The fear factor among consumers and investors has driven gold up to near $2000 an ounce and Warburg’s predicts it will continue higher throughout 2012. Another red flag.

It’s a shrinking world and that means: So goes America – so goes Europe and vice versa. U.S. debt and Congressional spending habits are weakening the dollar and undermining global confidence in our ability to avoid economic chaos in the near future. This very real threat is underscored by unemployment in the U.S. that is consistently bad – above 9% and its not abating anytime soon.

President Obama’s re-election is threatened by the dems inability to jump start the recovery and reduce unemployment. His new plans released yesterday sounded familiar, because its a lot like the old plan he brought into office. Basically it’s more spending of what we don’t have and he is still clinging to Bernake…which is why the market gave his speech a vote of no confidence today.

The European common market is faced with three nations, Spain, Italy and Ireland that are in dire economic trouble. It looks like more Greek type bailouts are the only thing that will save them from a credit default. The three nations all have one thing in common: Unsustainable safety nets and perks for citizens and lavish benefits for government workers. Try taking that away from their citizens – it’s going to get uglier than the London riots. Their common market and Euro instability directly affects the U.S. stock market. Another major red flag.

You have to be thinking okay, okay…enough of this BS, what’s the good news? The good news is many major corporations are cash heavy (a defensive posture) and they would love to invest and grow that money and hire people. They just need a good reason. The other good news is that stocks are skidding into the area of bargain basement buys. What you have lost due to a weak dollar and inflation you might recoup if you buy good stocks that are heavily discounted. It’s a gamble for sure, but show me a 100% guaranteed return and I’ll show you an i-Bond at 4% interest and even that is not a sure thing if inflation goes to 6%, then you’ve lost 2%. Other good news is the U.S. has a substantial oil reserves that could last us another 200 years, far longer than the time needed to convert to other energy types. Our natural gas reserves are off the charts, we just need to access this natural resource and so far government policy has blocked us.

Looking at the 3 month DOW chart above you can see we entered a period of recovery, hit a snag because of our fiscal policies and that plunged on the first long leg down until we found resistance. The market formed a double bottom which is a good sign that typically leads to recovery. However this turned out to be a false start because the economic picture here and in Europe couldn’t sustain a rally without something else to raise our sights. The jobs numbers came in and that dropped us down again. Consumer polling said people were becoming very cynical about a recovery and the President’s ability to lead us. The election is 14 months out and all we have to relay is an Obama plan that involves more borrowing. If stimulus spending was the answer we would be stimulated into being the greatest economy on earth. As things are, we’ve slipped into 5th place and we’re pretty much broke. We don’t even have enough cash to pay for disaster relief in Texas.

And this folks is why the stock market is behaving so schizophrenic. We better Hope we get a Change in 2012.

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11 Responses to What is the Stock Market Trying to Tell Us?

  1. Libby says:

    I’ve heard that the stock market is in no way reflective of the state of the economy, that all this volatility is the result of really big players (hedge funds, pension funds, and like that) using electronic trading to eek a quarter point on the up … or the down … makes no difference to them … their quarter point being of infinitely more importance than any social havoc they may be wreaking.

  2. Pie Guevara says:

    Investors are nervous, pure and simple.

    The failed 800 billon in stimulus spending has been wasted on false promises and diversions into state bailouts, the government still threatens the business environment, and Obama has announced yet another bogus stimulus plan that will cost 1/2 as much again.

    As the World Economic Forum explained in it’s analysis, “the United States had been building up large macroeconomic imbalances, with repeated fiscal deficits leading to burgeoning levels of public indebtedness; this has been exacerbated by significant stimulus spending.”

    The current climate is likely to continue as long as Obama is in office, Democrats control the Senate and the US government spends like a drunken sailor on leave.

  3. Post Scripts says:

    Now Pie, no need to go insulting drunken sailors on leave by saying they spend like Congress – they have their limits (when the money is gone), Congress doesn’t.

  4. Post Scripts says:

    Libby, I’m sure that a bit of this action was due to computerized trading by hedge funds, but after 9-11 there was a lot of improvements made to software to prevent a run on the market. Even the NYSE and the NASDAQ can apply the breaks when needed. Doing the kind of buying and selling you think the market-makers are doing is possible, but not probable.

    I would be very surprised if this was all it is.

    Like Pie and others, I think there’s just too much fear in the market, people with money are playing their investments very close. Investment funds are probably operating with a hair trigger to avoid being the last in a stampede.

    It is alarming and I don’t like it, even though I tend to make a little money during such times of overreaction. T

    his is no way to invest for the average person. A lot of people, even the pros, are getting creamed in this kind of action.

    Just between you and me, I went on a buying spree today. Buying stocks I felt were discounted more than enough to warrant the risk, we’ll see what happens next week if that was a wise move or not.

    There’s an old saying on Wall Street that goes like this: “You can’t get hurt falling out of a basement window.” Well, you can…but not too much, we shall see next week.

  5. Pie Guevara says:

    My apologies to drunken sailors on leave everywhere.

  6. Pie Guevara says:

    Also there is always short term opportunity that is traded over long term risk.

    I recently bought and sold some BAC short term BAB. (BAB = Before and After Buffet). Made a pretty good percentage before the Great Rapist’s cut. Not great, but not bad. I wish I had had more to throw at that trade.

    I was lucky and caught a short term roller coaster on that one. Evidently a lot of other people did too. My own contribution would not have even made a millionth of a microdot of ink on the chart line.

    It is often said that what drives the market is greed and fear. I disagree, it is fear and less fear in this climate.

  7. Libby says:

    Jack, you’re being very naive. Entities with hundreds of millions to play with can, and do, move the market all by themselves. Are you really denying this?

    And entities with mere millions correspondingly dump, and then it’s a race, on the up, for that quarter point.

    None of this has anything to do with you or with the value of companies in which you have invested … which is why everybody else is in T-Bills. But heaven forfend you should pull your head out of that free-market, capitalist mire.

  8. Pie Guevara says:

    Better to have your head in a free market capitalist mire than a brim full Marxist latrine.

  9. Pie Guevara says:

    Oh, and what slammed stocks into the dumper today was Obama’s speech last night.

    Sometimes I just wish he would keep his mouth shut.

  10. Tina says:

    Q: “The stock market is telling us that they are shirking their responsibility. For, only business can save us.”

    You’re correct that only business can save us. But they are doing exactly what they should do; they are acting responsibly. The Obama team could take a page:

    Don’t risk or waste time, money, or effort by hiring, expanding, or innovating in an uncertain, even hostile, atmosphere…it would be irresponsible, not to mention stupid!

    From the CNN link:

    NEW YORK (CNNMoney) — President Obama can’t fix the jobs problem. Neither can Rick Perry, Mitt Romney, Michele Bachmann or any of the other Republicans who want Obama’s job.

    There is one difference. One of those people mentioned doesn’t know what to do to create certainty, the others do.

  11. Pie Guevara says:

    You nailed it Tina.

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