Update: Thursday saw a big DOW drop of about 300 where Friday was up a bit so I continue to think we are near the bottom unless we see some strong indications that the stimulus will fail. I think traders are basically waiting for new details on the stimulus and economic plans and trading quickly as that information filters in. I suppose the coming challenges with consumer debt may not be fully factored in yet but one would think they probably are and the new news will be along the lines of whether the stimulus is stimulating or not. I understand consumer debt sits at 4.5 trillion as people lose their jobs and home values and thus ability to repay. I am concerned that the stimulus is directed at bureaucracy rather than powerfully targeting lower and middle classes with massive jobs and debt relief and the upper class with innovation incentives, but I ain’t no economist. Of course the economists don’t have much of a track record…either!
With the DOW up about 150 points today [Wed] at the close, and optimism flowing about how China’s Government will pump up their economy soon, it is very tempting to think the worst is now behind us. Tempting because it’s probably true, at least for the next several years. My view (as usual with the caveat that you are as likely to gain trading insights from me as from the worthless punditry on CNBC (Yes, I’m talking to YOU Jim Cramer and I’m happy to bet you $25,000 you can’t outperform me in stock picking over any future period you choose). Don’t get me wrong Jim – you are very *entertaining* and I’m sure a fun guy and I enjoy your ….BOOYA! Silly TV show.
I’m just saying that you just have no more insight into picking stocks than a deranged chimpanzee picking stocks by urinating on a copy of the Wall Street Journal. * * *
Pessimists and doomsayers are pointing to the great depression where the initial 1929 market dive was followed a few years later with the DOW all time low = 41, some 80% lower than the *day after the 1929 crash*. This model of market behavior suggests we are in for a lot more trouble, but I think conditions now are so different that we cannot use that history as much indication of what lies ahead. The most important difference in my view is that the Government now is much more prominent and economically powerful than it was in 1930s, and even more importantly our Government is about to inject more money into the system than at any time in human history – more money than anybody can reasonably imagine.
Despite the inane and irrelevant rantings of the Four buffoons of the Republican Apocalypse – Rush Limbaugh, Sarah Palin, Sean Hannity, and Joe the Plumber – the stimulus is very likely to at least have something of a positive short term effect on the economy, and the new role of Government as more of an economic babysitter than before is hardly sending us down some slippery socialistic slope from which we’ll never recover. In fact look for China to recover *first* from the recession for the very reason that when the going gets tough, China’s CapitalCommunist style economic system allows much faster and simpler implementation of the kinds of intervention that the Obama administration is struggling with now.
Thoughtful conservatives are suggesting there are likely better ways to stimulate the economy than pour hundreds of billions into state and federal government infrastructure projects and that’s certainly true, but we’re hearing very little about constructive alternatives to the contruction projects that will form the backbone of this initial stimulus. Rather, Republicans are now so busy trying to tear down the stimulus and (absolutely moronically) blame Obama for the crisis as if his 40 days in power somehow trumps the past 8 years of fiscal mismanagement and massive government spending which itself was only a part of the current problems. As I’ve noted before there is far too little attention on the single biggest group of culprits in the whole fiasco – everybody with a mortgage on their house who borrowed money, responsibly or not. It was this flush of paper wealth and the lure of more that provided the fuel for the derivatives and banking excesses. Many of us did not act irresponsibly or irrationally when we took advantage of the massive consumer lending boom with cheap and easy loans, but we also can’t claim that we have nothing to do with the problem just because we are not defaulting on the mortgages. Sure I’m for punishing irresponsible people and businesses – that’s a major part of what keeps our system better than others – but I also understand that I’m going to have to foot some of the bill for this mess even though I didn’t do anything wrong.
So, have we hit the bottom on the indexes? I say *yes*. We hit it yesterday and we now have more reasonable values for our fine American companies. Will things soon bounce back to their former glory? No way. The recovery will be slow and I think slower than the optimistic numbers we heard from Obama’s team yesterday. I’d guess it will take a decade or more before we see a DOW at 14000 again, with the caveat that we may see some spectacular, game changing innovation (e.g. conscious computing, near-zero cost energy) that would change everything very fast, leaving our entire global economic infrastructure in the dust. However I doubt we’ll see anything like that for many years.
*** Yes this is a real offer of a $25,000 wager subject to any legal restrictions that would restrict it. Money would be held by an escrow service of Jim Cramer’s choosing. Period would be picked by Jim Cramer. “Better performance” would be defined as a greater total return on the portfolio over the period without regard to fees or expenses.