[jyl]

I talked last weekend to a guy who owns a commercial RE development company. They build large hotels, apartment complexes, etc. Financing has dried up and in the current environment, they are unable to proceed with any projects. He will be cutting his company by half soon.

To show how bad things are, one of his large clients has 5 large buildings (40+ stories) where construction has stopped in mid-air. It is crazy to leave a 45-story building half-built and exposed to the elements, but the money has stopped dead.

The 3Q prelim GDP data showed real (inflation-adjusted) consumer spending fell -3.1% YOY. That, my friends, is worse than in 2002 or 1991 (didn't even fall to 0%), worse than 1982 (fell appx -1%), and equal to or worse than 1974 (fell appx -2.8%). And October consumer spending was even worse than September. We are in the worst consumer recession since the Second World War. Yet the stock market's PE is still about 3-4 points higher than the low point of the 1974/75 bear market. There are some reasons why the market arguably should have a PE higher than 1974, but those reasons are rapidly disappearing. At this point the only clear reasons left are that interest rates are lower today, and inflation is also lower. But are interest rates really lower, considering that credit is simply not available for a large swath of the economy? And while inflation is rapidly disappearing, if it is replaced by deflation that is not necessarily an improvement.