Tuesday, May 19, 2009

Beware The Bear Market Rally

You should read this especially if you still have anything left in your IRA or 401-K Plan. Yes, the market was up yesterday - but wait....

"The Worst Is Yet to Come": If You're Not Petrified, You're Not Paying Attention
The green shoots story took a bit of hit this week between data on April retail sales, weekly jobless claims and foreclosures. But the whole concept of the economy finding its footing was "preposterous" to begin with, says Howard Davidowitz, chairman of Davidowitz & Associates.

"We're in a complete mess and the consumer is smart enough to know it," says Davidowitz, whose firm does consulting for the retail industry. "If the consumer isn't petrified, he or she is a damn fool."

Davidowitz, who is nothing if not opinionated (and colorful), paints a very grim picture: "The worst is yet to come with consumers and banks," he says. "This country is going into a 10-year decline. Living standards will never be the same."

This outlook is based on the following main points:

* With the unemployment rate rising into double digits - and that's not counting the millions of "underemployed" Americans - consumers are hitting the breaks, which is having a huge impact, given consumer spending accounts for about 70% of economic activity.
* Rising unemployment and the $8 trillion negative wealth effect of housing mean more Americans will default on not just mortgages but student loans and auto loans and credit card debt.
* More consumer loan defaults will hit banks, which are also threatened by what Davidowitz calls a "depression" in commercial real estate, noting the recent bankruptcy of General Growth Properties and distressed sales by Developers Diversified and other REITs.

As for all the hullabaloo about the stress tests, he says they were a sham and part of a "con game to get private money to finance these institutions because [Treasury] can't get more money from Congress. It's the ‘greater fool' theory."

"We're now in Barack Obama's world where money goes into the most inefficient parts of the economy and we're bailing everyone out," says Daviowitz, who opposes bailouts for financials and automakers alike. "The bailout money is in the sewer and gone."
As for things getting better, green shoots and all that rot, take a look at places like Selma Alabama - home of the Civil Rights movement. Where is their stimulus money? Selma is the kind of area who should be getting stimulus - if you believe in programs like stimulus at all! This is precisely why the stimulus plan is such an incredible joke. Who got the money? Automobile unions and campaign contributing bankers and Friends of Obama (FOO), like ACORN.

But ... get ready for the next market downturn. The decent we have seen matches almost perfectly with that of the Great Depression. The unemployment rate also matches.

It's not at all pretty, no matter what GE/MSNBC, et al. try to tell you.


Anonymous said...

Given the present conditions I've wondered if it probable that the Dow would go up or down a thousand points in a week. I've felt that down is a far greater possibilty.

Milehimama said...

According to the news, NO ONE is getting stimulus money. Only 6% has been spent!

The credit card companies are having layoffs - AmEx laid off 11,000 people so far. You know it must be bad!

We stopped contributing to the 401(k) in January, and we're using the money to stock up the pantry as a hedge against inflation.

40,000 layoffs with the GM closing of 3200 small businesses/franchisees, plus more with Chrysler closing even more. It's just going to get worse.

Forunately for us, TX doesn't seem to be suffering too much, yet...