My last market call was 7,000 for the Dow back on November 19, 2008. Today, I’m calling 6,500 as a potential bottom.
You might recall that last week, Jim Cramer, host of CNBC’s Mad Money, and a very fine guy, said, “Time to buy the Depression is over.“ If you listened to or watched CNBC throughout the work day last week you heard many hosts and invited talking heads saying the same basic thing: It looks like we’ve found the bottom, some day we’ll look back at the first week of April or final week of March 2009 and say that’s when the recovery began.
Fed Chairman Ben Bernanke began the recovery talk on March 15 on CBS News’ 60 Minutes, when he spoke of “green shoots” of economic recovery.
“And I think as those green shoots begin to appear in different markets, and as some confidence begins to come back, that will begin the positive dynamic that brings our economy back,” Bernanke said.
Larry Summers, Timothy Geithner – all the government heavy weights – have sung from the same hymnal recently. Frankly, it’s a little disconcerting.
I’m sure as hell not an economist, but one of the things that seems to be recurrent through this financial crisis and recession is the totally unknown. No one knows what the value of the so-called toxic assets is. No one knows the true value of the credit default swap market or worldwide exposure is. (Some say $50 trillion) There is not a single source of information on the parties and counterparties to several years worth of high stakes gambling in the financial markets. The enablers of this boom-bust cycle, chief among them mathematics and technology, buried the risk needle into the red. Technology allowed this contagion to spread worldwide fast. Speed apparently kills in the over-leveraged, securitized financial marketplace of today.
We’ve tried TARPs, TALFs, and now the PPIP is on deck. Monetary policy has probably accounted for all the recovery it can take credit for before it begins to backfire. The wizards of Wall Street who got us here haven’t learned a thing because most of them are off Scot-free. The only thing we haven’t tried is what the Uber Capitalists usually cry for: survival of the fittest. A relatively few little banks and Lehman Brothers have belly’d up, but everyone else is getting bailed out.
The 6,500 comes from the fact that there are some “green shoots” which may cushion the further fall, but there is still too much structurally unknown – and potentially nasty – to begin to talk about a recovery. The stock market is not the be-all and end-all, but Lord we love to talk about it.
Here are some of the not-so-green shoots:
- Equifax says mortgage delinquencies on the rise; unemployment in the U.S. will not help that
- Veep Biden today on the Situation Room with Wolf Blitzer: No net job growth this year in the U.S. – specifically he said there won’t be a month this year without heavy job losses.
- GM bankruptcy – no matter how well conceived, and no matter the outcome, in the short term a psychic drain on the market and a different sort of bondholder taking a haircut.
- IMF will revise its estimate of U.S. originated toxic assets later this month – by a trillion dollars.
- The Tea Party factor – Even stalwart Obama supporters like this writer understand and share the righteous anger about government bailouts for the likes of AIG, Citi and other big players. Rational public policy may dictate that there are firms too big to fail. They better figure out a way to pare them down quick or Ds and Rs and Is in this country may all finally agree on something and that’s “let them fail.” The public understands the inherent unfairness and injustice in what’s going on in the world of high finance and its bodyguard the federal government. President Obama’s credibility will start to take a beating if one of these schemes doesn’t yield results – including taxpayer returns – and soon.
- I believe that it’s in the second half or final quarter of this calendar year that a bunch of mortgages reset, a bunch of the bad mortgages.
- We are still not doing anything large in this country to create real economic value. We’re propping up the financials and we’re apparently going to build some roads and repair some bridges. Where is the government investment and tax policies that will create manufacturing and economic activity with underlying value which benefits average folk and not just the investment class.
It just appears that we’re still out there with our collective head in the sand. Until the country realizes that this colossal economic failure is not a cycle but a structural shift – and that we need to start over in many respects – we just prolong the agony.