I have been speaking to my dad as well as ten other friends and family about when the Stock Market would turn. I got to the point of continually repeating myself like a broken record, that I finally said "enough is enough". (The reason this BLOG exists). These are the facts, and don't shoot the messenger.
1- The economy lost 598,000 jobs last month. The November and December Unemployment numbers were also revised up, meaning this months dismal numbers will look even worse next month. This is the most job losses since the mid 70's (When the NY Islanders were winning). The unemployment rate rose to 7.6%, the most since 1992(The last time Baseball's Pittsburgh Pirates had a winning season). There is no reason to believe these numbers are turning around anytime soon, just from looking at the daily headlines of layoffs, office/store closings, bankruptcies.
2- GDP revisions are still coming down not only in the U.S., but globally. Watch the price of Crude Oil! All recent rally attempts in Crude have been wiped out as investors have abandoned the global growth thesis, and been forced to liquidate positions and or waiting to liquidate holdings they have purchased at higher levels. But as soon as Asia, especially China (Wild Card) start to have confidence in their economies, you will most likely see a surge in Crude Oil. The Shanghai Stock Index has rallied very nicely this year, although its one of the worst performing of the major indices.
3- The Financials still have considerable headwinds. Will Geithners Plan stop the pain?
The above three reasons have all contributed to low or non existent Investor Confidence. Markets don't rally when people don't care. Markets rally when people have confidence in the system. Anybody who tells you anything different, doesn't know his ass from his elbow.
I am not surprised that the market actually rallied Friday, it looks like 8000 on the Dow is holding for the time being. You may see a nice rally up to 8500-8750 in the Dow, if the Obamo Stimulus Plan is approved by the House and Senate(Major If), coupled with Tim Geithner's Plan for the banks coming out Monday morning. (More on this in a future post).
But Gun to Head, the single most important event that would change all of this for the better is the Housing Situation. If Housing can somehow stop going down, just stabilize so home owners can take a breathe and move away from the ledge, so financials and banks can properly price their toxic securities on their books, trading desks can have go out and make proper bids and offers, the securitization market can go back to what they do, and most importantly Banks can once again do what they do best - Which is to LEND. Right now as housing is still in a free fall, its nearly impossible for any one of these scenario's to take hold. Home prices in many markets are still being based on the foreclosure price. This is the single most devastating issue that is effecting housing. How do you stop this? How do you stop people from walking away from their homes? How do you stop the banks from foreclosing on home owners? I don't have the answer to these questions, sorry, partly due to the fact that the government is still convinced that fixing the banks will fix housing, wrong!....Fixing or trying to find a solution for home owners will fix the banks, thus stabilize housing. This unfortunately will only dawn on Obama and Geithner towards the end of this year after this round of stimulus fails, and its going to fail.
Why hasn't the treasury further worked on refinancing existing under water mortgages? Work with Fannie and Freddie to reduce mortgage costs? Make it easier for home owners not to walk away? This is the U.S. Government we are talking about, they have toppled other governments. They cant find a solution for their own taxpayers? Surely it sounds easy, but the fact remains, Congress and the powers that be do not want to be the ones held responsible for a total whole sale bailout of the U.S. Home Owner!...There is no money in it for them in terms of campaign contributions, thus no motivation for them to do so.
Remember...PACS, lobbyists, and special interest groups run DC, not Ralph Nader. Wall Street and the financial institutions have huge lobbyists who are in meetings and conference calls all day making sure that they get bailed out not the Home Owner. Follow the Money!
So in the absence of doing the right thing, you have to leave it to time to heal all wounds (Doesn't it always anyway after considerable needless pain?), which will be sometime in 1st-2ND qtr 2010 when housing stops accelerating downwards.
Obama seems to be a pragmatic guy, but he is walking on egg shells as he tries not to upset the delicate balance in DC. I am sure he will find a way, but it may be already 2 outs no one on base bottom of the 9Th inning.
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