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.