The main business headline Thursday was a revision to Gross Domestic Product projections that showed the U.S. economy grew faster than earlier thought during the second quarter. That news sent the Dow marching upward by more than 200 points. But as we've learned in recent months, good news is only as good as the next bit of bad news, and that came Friday when new data on consumer spending and personal wealth helped sour the mood again. Personal income fell .7 percent in July, the biggest drop in three years, according to the U.S. Department of Commerce. Consumer spending also dropped .4 percent, the lowest since 2004. There has been a lot of concern lately about how much longer the country's consumer base can keep doing its thing as layoffs continue, the job market remains weak and more and more people increasingly resort to their credit cards for necessities, rather than the gadgets and toys they used to charge. Once you max out your Visa or MasterCard on groceries, then what? That concern was evident Friday in the resulting triple-digit decline in the Dow that took back more than half of the previous day's gains (and for whatever reason, MarketWatch continued to carry the headline "Blue chips rein in day's loss" as the Dow's losses actually accelerated to close down 170 points). Some investors are putting much stock (the faith kind) into multinationals for their ability to sell goods abroad, even while the economy at home languishes. A great example of this is Coca-Cola (KO), which got a lot of exposure during coverage of the Olympics in China, where it is trying to grow its brand. But there have lately been signs of slowdowns abroad that put that theory in question. My confession: I'm really getting burned out an all of this. Watching the daily see-saw between stocks and oil, being told this piece of data is a game-changer only to be told just the opposite the next day and the incessant rants of pundits who profess to possess some type of crystal ball, have all served to drive me to the brink of insanity. Take for instance this comment from Doug Kass, a guy I read frequently enough on TheStreet.com: "The key factors that I feel will influence the course of the market for the balance of the year clearly include politics, credit markets, housing, interest rates, crude oil and other measures of inflation, corporate profits and geopolitical events." Wow. That's what I call hedging your prognostications. The only thing he left out was killer bees. My returns lately have been slightly negative. I ditched the short real estate and financials ETFs I recently entered. I remain in DIA, XLF, MDY and SPY.
Monday, September 1, 2008
Subscribe to:
Post Comments (Atom)
3 comments:
If a tree falls in the forest...
You should be confused about the market. Who isn't? There is no question we are in a bear market and these violent short covering rallies are evidence of that fact. The Fannie/Freddie bailout should come as no surprise. What else is the Federal Government to do? What is sickening about all of this is the fact that every day the Federal Government makes a sweeping decision that involves mitigating the peril of systemic risk. Will this make it easier to qualify for a mortgage and subsequently jump start sales of homes? Will it reduce the growing rate of foreclosures or provide people with greater employment opportunities? Absolutely not, don't be fooled. We are in the process of a historic delevering of all balance sheets throughout the world. The massive credit bubble created by the Greenspan fed is creating a massive credit crisis and a historic subsequent deflationary spiral. Unless you are Warren Buffet, try and borrow some money and you'll see just how restrictive new borrowing has become. Lenders are notifying borrowers at this time that their home equity loans are being significantly reduced from their original intended amount and their credit card limits are being arbitrarily reduced by the Credit Card companies. Credit is drying up all over. Today it takes a credit score of 690 to buy a new car, much higher than one year ago. Will this jump start sales of new autos? These are all symptoms of a significant credit crisis that will last for a long time. This is an opportunity to sell the financials, not buy them. Last week key levels were broken on the down side in every sector and Dow 9600 or perhaps even 6000, here we come. Ask yourself, why should an investor pay 25 times current earnings for the S & P today, when the historic level of price earnings is closer to 13 times earnings?
Post a Comment