And just as we debate a stock market crash the markets begin to turn around. Funny thing, huh?
I’m no economist, but I have seen reference in the past to the necessity of a bear market hitting a “double bottom” before it’s really over. Someone with more expertise than I have could tell us whether that’s true or not, and exactly what it means.
But from a non-technical point of view, I think wariness is in order. If we’re in a real recession, and I think we are, it’s far too soon for things to have really turned around. If we’re not in one, then it is being postponed, and that’s scary. I fail to see how the erasure of trillions of dollars of paper wealth can result in nothing more than a mere hiccup in the economy.
Clearly, the market’s present flailing is largely due to uncertainty. Look at the banks, for instance. Citi and B of A are raising capital; a sure sign that they believe their capital is going to be impaired if they don’t. That’s extremely scary. On the other hand, US Bank is hardly off its 52 week high. Then, looking again, Region’s Finance is ridiculously low if one does not think its sitting on top of a near disaster scenario. Yet, while there is some bad news at RF, there’s not much reason to think a disaster is unfolding. Some of the smaller ones, whose earnings are almost unaffected are getting killed, with stratospheric short interest levels and PEs that have a 1980s look to them. They go up and down 10-20% in a day.
Techs are getting killed, yet their PEs are still above the clouds.
Some of these things seem to be happening because of manipulation. Some because of blind panic. Some because people just don’t have a good feeling about it.
One can analyze the “whys and wherefores” until one’s head hurts, but the reality is that nobody really knows for sure how they’re going to perform in the next year.
Not being an expert in any way, just one who relies on instinct, I’m thinking we have not seen the last of these jumps and plunges. My suspicion is that anybody who gets into a stock that has good fundamentals right now is going to make some serious money in a couple of years. But I also think he is going to have to accept it that he’s almost certain to see it go south on him before he does.
That’s why I wish the government had simply extended unemployment benefits and let it go at that. If we’re going to see an “asset purge”, we ought to get it over with in a short, sharp shock. I would think Bernanke insane for dropping the rates except for the possibility that he sees some bank weakness, particularly “big bank” weakness of such a serious nature that he felt he had no choice but to do what he otherwise ought not to have done.
It’s hard for me to believe others have not had the same thought. Gold was dropping until the “stimulus package” and the “rate drop” happened. Now it’s surging. One thing about the “gold bugs”. They live in a strange, one dimensional world. But you ignore them at your peril. They’re telling us inflation is headed higher and the dollar is headed lower, and that they have no confidence in anything the government or the fed is doing. If that’s true, we’ve taken more poison instead of the cure, which one could suspect without even seeing what the “gold bugs” think about it. That part is truly worrisome. Oil is $10 off its high. Oil is a commodity whose price is strongly affected by both inflation and its anticipated rate of consumption due to economic activity. Gold is a commodity whose price is largely affected by inflationary expectations, and very little by actual consumption. I don’t know, but to me those seeming expectations rhyme with “stagflation”. I would keep my powder dry.
