Well the Dow closed the day at 1040. Just above the magic 10k. The Market headline says “at lowest level since July 7th.” But this misses the point.
The point about today’s close is not that it is down at the 10k level nor even that today’s drop was a massive 134 points after a 119 point drop the previous day. The thing which we should take notice of is that this is the fifth time the Dow has fallen back down to 10k since November of ’09. November was when the Dow first ‘rallied’ above 10k from its ’09 crisis low point. But each time the rally has failed and fallen back.
5 times in nine months and it has failed again. That to me is the message here. You have to think that without further stimulus this is it. Not only will the market’s not escape 10K but as any remaining confidence in the rhetoric and promise of growth turns to dust, then 10k will receed into the clouds as we slowly, or not so slowly, sink.
How can I be so sure the market is not going to rally bigger and better in the coming months? Well first there is NO good news in housing whatsoever. The overhang of unsold houses waiting for a sale would take over a year to get through if sales stayed at their present anaemic rate. But the rate won’t stay at this level, it will slow because unmeployment is going up and growth is shrinking.
If it were just housing things might not be so bad. But it’s not just housing. Over 150 firms on the NYSE fell lower, today, than they have been in a year. Over 200 did the same over on the NASDAQ.
In the coming weeks I expext to see growth forecasts revised down heavily at industrial giants like Boeing and CAT as orders for planes are cancelled and construction collpases. After that I expect we will see stories about the airlines hurting as travel drops away ‘faster than expected’.
Among the banks both Bank of America and Wells Fargo both fell to lower than they have been since August of ’09.
I also think the ‘smartest men’ are still stupidly over optimistic. For example, the Chief U.S. economist at Goldman Sachs, Mr Hatzius, forecasts employment in the U.S. will rise but only by 0.4% from 9.6 currently to 10%. Rrrright! He also thinks U.S. economic growth will be around 1.5%. Uh huh. And he expects house prices to fall a little less than 4% in the next one to two years. One wonders if these expectations are with or without the $1T stimulus?
What I think is he is either daft or disingenuous.
By the way when Mr Hatzius says asset purchases or other unconventional measures this is banker speak for continuing to buy U.S. mortgages via Fannie and Freddie and I suspect the ‘unconventional measures’ may mean helping to avert the melt down in both Commercial mortgages and possibly even in the world of largely worthless Heloc loans which currently threaten the existence of the Big Banks who are sitting on hundreds of billions of dollars worth of them.
The drums are now beating loudly for the next Trillion dollar wealth transfer. When Goldman and Pimco are out in public in the same week talking about how it MUST happen then you know behind the scenes the lobbying is hard and heavy.
The Fed has a big meeting soon to discuss these very issues. I suspect the decision will be all but taken there in private, even if we don’t hear of it for a while. But I don’t think it will be long before we are told. The Wall Street boys need the deed done before it gets too close to the Mid Term elections and before people start to feel the full force of public spending cuts – which they still haven’t. The banks also need it to happen before house prices start to fall again and panic people. House prices are currently quite a long way above where sales will soon force them to go.
All in all Ithink today was a significant day.