Image by Aaron Edwards via FlickrDo You Still Feel Good?
The Dow Jones Industrial Average climbed sharply late this afternoon to close up for the day. Nevertheless, that close finished a topsy-turvy (pun intended) week which shows a net decline in the Average of -2.19%.
I’ve been sitting back and just watching this thing all week, this jigsaw mess of a market. Horrible numbers are released and folks just pour cash into stocks. Perceived ‘good’ news is released and the whole country grabs as much as they can to hide away.
Talk about a lack of confidence… it’s almost as if the market has decided just to disbelieve every piece of news that comes out. What’s up, people? Did the last 8 years make you that greedy? You’re all out there trying to ‘out-think’ each other. Only problem is – you’re ALL doing the same thing.
Sell into rallies, buy into dips. What hogwash. When everyone has the same strategy, isn’t it time to think of something else? I’m not saying do the opposite just for the sake of doing something different, but geez! This is like watching a bunch of keystone cops running around on ice.
You might be better off just taking a vacation.
Go ahead – criticize me for not buying OR selling. Tell me to keep my mouth shut if it has no cash in it. Choose to only listen to folks who have a position to push, a book to talk.
I’ll just remind you of Jon’s Rule Of Investing In Markets #’s 1 and 11:
1. Everybody is always in the market, whether they know it or not.
11. I do not have to be actively trading in the markets to gain a profit.
It’s Basic Math – So Easy A Schoolchild Could Do It
I firmly believe that we will most likely be enduring a full depression. The actions of the Fed and the Treasury have almost guaranteed it. Instead of letting the market work as it was designed, the Fed and the government have thrown debt-dollar after debt-dollar to correct an excess of already toxic debt. (You can trade that market if you want to.)
Any schoolchild with a basic knowledge of negative numbers can work this math. If you add a negative to another negative, what do you get?
A Bigger Negative.
You cannot create a positive balance by throwing even more negative at it. This entire thing was caused by excessive leveraging. Creating debt without assets to back it up. All of the failed and bailed companies were leveraged at about 40 to 1.
The Fed, and hence our Treasury, is now leveraged at about 51 to 1, and everyone who reads this is probably hoping for Another $600 Billion when Obama takes office next month. Folks, it’s really simple math: This is not the answer.
If the market had been allowed to work the way it was designed to work, the toxic debt would have been forced out into the open sometime during 2008. Huge losses would have become known, mega corporations would have defaulted and disappeared. The folks at fault would have been outed by those who were close to them, charges would have been filed, trial dates set.
It Would Have Been Awful Really Fast
It would have been just awful for the world to see, for us to live through. Most of the banks we knew would have disappeared. Our 401k’s would have evaporated, our savings accounts worrisome. Jobs would have been lost as the entire mess caused by the banking industry rippled like a shock wave through the global economy. Unemployment would have already topped 20%.
There would have been panic, maybe to the point of riots. The Dow wouldn’t have stopped falling until it hit something we could all have confidence in, and even then it would have overshot the real value point due to panic. It probably would have gone well below 5000, maybe as low as 2000.
We’d be right in the middle of that right now, if the markets had been allowed to work. The Middle of it. The so-called ‘bottom’. We’d be seeing the glimmer of recovery at the end of a fairly short tunnel and by the middle of next year, we’d be talking about it in the past tense. But we’re not at the bottom.
We’re not there yet because the folks in the Fed and the Treasury are the same folks as in the banking industry. Specifically, both places a simply filled with people with strong ties to Goldman Sachs. Follow the money. You will see what I mean. But that’s a different story.
It’s Gonna Be Awful A Really Long Time – Thanks Hank!
Instead of letting the market work, our leaders stepped up and started throwing more cash, aka – DEBT – at the mess. As of today, Dec 8th 2008, the total is somewhere north of 8 TRILLION dollars. When you consider that the entire supposed increase of the DOW over the last 8 years is estimated at 12 trillion, you start to see how bad this really is. (Interestingly, the GNP of the US is just about 12 trillion.)
Already, our government alone has poured two thirds of the supposed gains of the entire bubble at the problem, and things are steadily getting worse. The stimulus package Obama is expected to announce will probably be on the order of about a trillion dollars.
That’s a full three quarters of the total gains thrown at the problem, by January 2009. And yet, nearly everyone agrees that even with Obama’s stimulus package, things are only going to get worse throughout next year. Unemployment will rise, companies will fail, bailouts will continue to funnel cash to fat cats who probably deserve prison time instead of a bailout. Nobody really expects any kind of recovery next year, with some saying this will last well into 2010 or beyond.
I am Jon, the optimist.