Why is the market falling

[ruf-porsche]

At the beginning of this year financial advisors were telling everyone to not panic and keep their money in the market.

The market is under 8000, so who is trading these days to cause the market to drop and where are they putting their money?

[Porsche-O-Phile]

(1) Psychological damage (a prelude to capitulation, which is necessary before a "bottom" is reached and a reversal starts)

(2) Job losses (the same Wall St. that normally celebrates payroll cuts is starting to get nervous that nobody will be able to afford/pay for goods & services now... Duh)

(3) Housing (still - it ain't going away). Prices still WAY too high, lending becoming way too restrictive, tons of excess inventory, tons of crappy mortgages still poisoning the system in the form of MBS-es, etc. The poison needs to work its way through - this will take years, if not decades.

(4) Desensitization to Government Action - the numbers like "billions" and even "trillions" are just not registering anymore. The government could announce a 20 trillion dollar infusion of cash into Main St. tomorrow and I doubt it'd do much. It's starting to look too much like "panic" rather than "quick, decisive, bold action".

(5) Decoupling of Dollars from Value - this is what I honestly think the #1 underlying cause of the problem is - and it's been exacerbated by overreliance on credit for the last 20-30 years. The concept of a "dollar" as a unit of money having a certain value has become disconnected from peoples' psyches. They don't think of money as money anymore. It's just numbers. It's not thought of in terms of value or work required to obtain it (to pay it back). It's just numbers on a piece of paper. This was probably (IMHO) the #1 reason for the housing bubble. People just COMPLETELY lost touch with what the value of things was and how to represent that in terms of the base unit of currency (the dollar). The numbers became so wildly de-coupled from reality it was unprecedented.

- - - - -

The bottom is coming. My prediction right now is that when the DOW hits the "psychological bottom" that the market tried to establish back in November, it'll PLUMMET for a week or two and settle out at a new low - probably someplace in the 6000s. That's where it will really settle.

I honestly do think the DOW is overvalued slightly (maybe 10% or so) - even now. I'm considering shorts on the index...

[turbo6bar]

Forward earnings estimates are falling, so the market is adjusting lower to reflect.

[jyl]

SP500 retest has been pretty widely expected. 740-750 level is important. I don't pay any attention to DJIA, a price weighted index of only 30 stocks.

[fingpilot]

The end is near.

Those were the words I got from my broker....

He probably jumped out his window right after we hung up.

[tabs]

DITTO JYL...also NASDQ has held up quiet well.

I will tell you once the 8000 barrier was breached I got REALLY SPOOKED...

The Obama Administration has done NOTHING to calm the markets and inspire any confidence. It was Tim Geithners speak for the admin that started this market breakdown. Clinton even told Obama to speak optimistically

here is the list:

1. Greasy laden Pork for a Stimulus Bill...don't they realize how serious this is and if nothing else they should have kept it lean and mean for show.

2. Geithners LONG awaited speech on the Banking Crisis Bailout...NO SPECFICS just parameters....we need some concrete here, something we can bite into..not just more campaign style rhetoric

3. The Mortgage Plan...not far enough or moral hazard...again this didn't fly too well.

Here is the dime..You don't need to get it exactly right, ANY program is going to work about as well as the next. It is largely psychological..it is about taking ACTION and not dithering about. Things have a way of working themselves out, one way or another.

This is not Liberal or Conservative speak, this is reality. This is the perception of the Obama admin. programs so far on Wall Street.


Now we have had a lot of spin about Obama, and how great he is. Well so far the record don't show it.



BTW: As a show of confidence Gold has gone from about $750-$800 an oz to a GRAND an oz....this is hedgeing against oblivion.

There are NO LOW risk investments today...except perhaps Treasurys aand there you are virtually putting your money in a mattress.with a 0.0 % interest rate.

So far the destructed investments are

1. RE...dive dive dive
2. Stock Market...dive dive dive
3. Bonds..
a. Interest rates.dive dive dive
b. Risk of Hyperi nflation wiping out your value...sky high
4. Gold...High risk of turning on a dime and falling back to earth
5. Hard Assets..Porsches...low liquidity turning into cement
6. Cash..cash is king, but with hyperinflation you might just have toillette paper.

It would be foolish to suggest that these were not always REAL risks, however we are now in an era of huge swings of the pendlum.

I will probably have to talk about Chaos sooner or later..nothing is ever under control it is ALWAYS just an illusion, the swings of the pendulum are just less so it seems like it is. Can we say Brazil, Mexico and Argentina...Now we are getting a taste of reality in America. THe future going forward is now where we are going to have these massive swings...and things are gong to be unstable maybe forever. What the government is trying to do is stabalize the system, with every menas at its disposal. I do hope that they will be able to accomplish the task. I suspect that they will come to some sort of equilibrium, BUT it will be a balancing act and one slip and back we go.

[MRM]

The market is responding rationally to lowered sales and earning expectations. It is going to get worse before it gets better. I can't tell you where the bottom is, because no one I know can see the bottom.

As I said last fall, things were bad until October, when it was like someone turned the faucet off. Sales are so far down for so many things that it's hard to use historical evaluation to judge today's prices. There is so much less economic activity now than there used to be, that it's hard to figure out where we really are.

Basically free and easy credit propped up the entire industrial market, just as it propped up consumer spending and the housing market. The GEs of the world used to be able to generate sales by subsidizing customers' purchases with cheap credit and sweatheart deals that encouraged customers to buy, even when they didn't really need to buy, just because GE gave such good terms and pricing. When the subsidies ended, the merry-go-round stopped and people started buying only what they needed and had money to pay for. Everyone has all the jet engines, bulldozers and manufacturing plants they need for now, and no one has the cash to buy more stuff.

So when people and industry stopped buying stuff because they didn't need it, and could no longer afford to buy unnecessary stuff with cheap credit, people and industry started cutting back on orders. That lead to cut backs, which lead to layoffs, which lead to increased unemployment, which reduced demand, which lead to more layoffs, etc. That's the spiral we're in now. There's wage deflation going on right now, at the same time as unemployment increases, all reflecting the worldwide reduction in demand for stuff.

When demand rebounds we'll see the cycle reverse. I just don't know how and when demand is going to rebound.

[m21sniper]

Originally Posted by Porsche-O-Phile

(1) Psychological damage (a prelude to capitulation, which is necessary before a "bottom" is reached and a reversal starts)

(2) Job losses (the same Wall St. that normally celebrates payroll cuts is starting to get nervous that nobody will be able to afford/pay for goods & services now... Duh)

(3) Housing (still - it ain't going away). Prices still WAY too high, lending becoming way too restrictive, tons of excess inventory, tons of crappy mortgages still poisoning the system in the form of MBS-es, etc. The poison needs to work its way through - this will take years, if not decades.

(4) Desensitization to Government Action - the numbers like "billions" and even "trillions" are just not registering anymore. The government could announce a 20 trillion dollar infusion of cash into Main St. tomorrow and I doubt it'd do much. It's starting to look too much like "panic" rather than "quick, decisive, bold action".

(5) Decoupling of Dollars from Value - this is what I honestly think the #1 underlying cause of the problem is - and it's been exacerbated by overreliance on credit for the last 20-30 years. The concept of a "dollar" as a unit of money having a certain value has become disconnected from peoples' psyches. They don't think of money as money anymore. It's just numbers. It's not thought of in terms of value or work required to obtain it (to pay it back). It's just numbers on a piece of paper. This was probably (IMHO) the #1 reason for the housing bubble. People just COMPLETELY lost touch with what the value of things was and how to represent that in terms of the base unit of currency (the dollar). The numbers became so wildly de-coupled from reality it was unprecedented.

- - - - -

The bottom is coming. My prediction right now is that when the DOW hits the "psychological bottom" that the market tried to establish back in November, it'll PLUMMET for a week or two and settle out at a new low - probably someplace in the 6000s. That's where it will really settle.

I honestly do think the DOW is overvalued slightly (maybe 10% or so) - even now. I'm considering shorts on the index...

Based on all that i've read, this is a balls-on accurate assessment of what's going on.

[vash]

lack of confidence.

[pwd72s]

Market showing it's endorsement of the new administration...

[tabs]

Yes the markets are showing a lack of confidenc in what the Obama admin is showing them so far...can this change for the better or even worse..yes.

Right now part of the economic effect that MRM is talking about is caused by a lack of CONFIDENCE. People are scared and are cutting back on normal activities. Remember there is always a demand in society for goods and services..things wear out and need replacing or servicing. Also with an INCREASING WORLD POPULATION...more goods and services to meet the needs of those people HAVE TO BE PRODUCED. We are not talking abut conspicious consumption here either. As far back as las t summer I was talking about an Obama Secular Round Head Revolution which if you know your history is a revolution of AUSTERITY..people only buying things they need..now that might mean a new TV set as the old one does not work anymore. But the days of Porsches, BMW, MB, Esclades, Hummers, McMansions, dinner for 2 at Mortons and a trip to the Bahama's (unless your depositing a suitcase of cah in a bank) are over.

So this is the collorary to MRM...who needs to spend some cash and buy somthing of value for his wall.

This one of the things that GM and even Ford said that the need for replacement vehicles is going to be needed as the old ones are wearing out. Thus a pent up demand is coming. This is not only true for cars but homes as well. The USA is creating 1.6M new households a year with 600,000 or so new homes being created.

[Jim Richards]

I might buy some snow tires

[pwd72s]

I figure that right now...at least until hyperinflation begins...cash is king. I'm hanging on to mine. Screw the new car ideas I had...later on, the stuff will be much cheaper.

[tabs]

Originally Posted by pwd72s

I figure that right now...at least until hyperinflation begins...cash is king. I'm hanging on to mine. Screw the new car ideas I had...later on, the stuff will be much cheaper.

Ahhh with hyperinfaltion your cash will be worth toillette paper.

[tabs]

And with an 800B Stimulus Bill that will cost 2.5T to repay...and all the other means to throw into the fire of economic collapse...to save the system...just how long will it be beofre that begins to happen...

Larry Summers this week said that right now it is important to print money to throw into that fire of economic collapse to save the system. However he siad that in "SEVERAL YEARS" it will be NECESSARY to show fiscal restraint and reign in spending to avert a crisis in the USD.

BTW: Summers at the begining of the interview had the look of a very worried man...or like an animal that is being hunted and knows it.

[pwd72s]

Originally Posted by tabs

Ahhh with hyperinfaltion your cash will be worth toillette paper.

Notice I said "until"...Tabby, your long ago comments about the Obama economy being much like the Carter screw-up seem to be coming true.

Before too many moons have passed, Obama will be giving a "malaise" speech...

[Jim Richards]

rainbow trout

[tabs]

The one thing I give Carter credit for having the balls to say, " America should put on a sweater." Inother words the reality of the situation is that America should not consider itself a rich nation, and should tighten its belt. Many people took it to say that we are in economic hard times and we should just lump it. Reagan came along and said, "America is Great and we can do anything and everything we like." Even though he preached fiscal restrait and believed it, it just didn't quiet work ou that way.

Look at the fking record..it has been one admin after another since Johnson, whether it is Dem or Republican that has spent, spent and spent some more. Deficit spending has been a way of life since LBJ. END OF FKING STORY...now the bell is tolling for America...

Is this the end...NO. but a new day is dawning..

[Jim Richards]

winnebago

[tabs]

Quiet frankly I think Obama is an educated IDIOT.