The Insightful Trader

Market Goes from Twilight Zone to the Danger Zone

by on Jun.18, 2009, under Market Commentary

It looks like the euphoria has finally started to wear off the past several days as continuing unfavorable fundamental data has started to catch up with our counter trend rally. All the talk of green shoots, upon closer examination, turns out to be just wild onions. Though we are short term slightly oversold after the past several days and could see a relatively small bounce over the next few days, many are starting to look at the market with a little more jaundiced outlook after a strong three month rally.

The fact that some stocks were able to beat their greatly revised  outlooks during earnings season is behind us now. Though there is still a lot of money sitting on the sidelines  and I’m sure nervous about missing any further upside moves, I believe the awareness is slowly sinking in that the hangover from the SEC’s neglect and the Feds multi-year loose money binge for the greater part of this decade, has not even really begun to subside. Have another bloody mary and make it a double this time. It’s got to feel better at some point. So the realization is, or at least should be, sinking in that there’s probably no rush.

Though a technical trader by trade, I’m a fundamentalist atheart and the fundamentals are nowhere close to giving me a warm and fuzzy feeling. The Fed continues to paint themselves into a corner. At what point do they cry uncle. Trillions spent in bailouts have done little if any to reduce the pain for the overwhelming amount of the so called ‘middle class’ citizenry. Mortgage rates have started back up, though for all practical purposes are still at multi-year lows. Hundreds of thousands have been laid off in just the financial sectors, the primary beneficiaries of the government largess. Seventy million plus baby boomers are looking at a whole new meaning to the word ‘retirement’ due to the decimation of their retirement funds and of course their favorite backstop, their home equity which has been vaporized. And of course, several new studies released this past week show that we’re still not at the bottom in housing yet. This doesn’t count probably hundreds of thousands of people sitting on homes trying to weather the storm who will promptly put their homes on the market at the first glimmer of a rebound, much as a novice trader will do who didn’t keep his stop and watch his stock fall 50% will sell at the first little bounce trying to preserve some equity.

Despite the Feds continuing spending, the average consumer remains ravaged. What token tax credits and/or cuts given are now being sucked up by basic necessities like food, credit card rates approaching 30% and now fuel prices which have increased nearly $1 per gallon in the past  several months. For the average family, the fuel price increase alone will suck up $1000 year. The recent drop in the dollar will only increase inflationary pressures. Let’s not even talk about how much extra the upward move in interest rates will cost our government, uh, that be you and I. 

It seems to me that our government’s whole attack on our problems have been to stimulate consumer spending, in other words, more of the same that got us into this situation. Has anyone besides me ever stopped to think that maybe all of us in the baby boomer generation, besides being spent out, just don’t want anymore ‘stuff’. I mean think about it, in our 30s and early 40s many of us were on a buying binge. Remember all the T-shirts with “He with the most toys wins”. Now in my 50’s I’ve got way too much ‘stuff’. We’ve had our Mcmansions. I don’t need or want anything else. In fact wish I could easily get rid of a lot of the ‘stuff’ I have already. The older we get, the more we realize that none or at least very littleof it, matters and it’s a chore keeping it up ar storing it. Plus many of us in this generation are now faced with taking care of elderly parents and relatives. Ferrari’s and Lexus’s don’t handle hospital and nursing home parking lots well. The net result is that probably 70% of the purchasing power that still remains in this country could care less about buying more ‘stuff’ that our government believes will save our economy. Frugal is the newest hip word.

The absolute worse thing about the whole situation is the legacy we’re leaving our children. I think in the recent downturn, many of the older ones have seen some of the pitfalls and are more frugal than we were at their age. But they’re now facing decades of paying for our mistakes withhigher taxes for their lifetimes because our healthcare and retirement systems were so mismanaged and misallocated.

 Reading a report from Tom Dyson of the Stansberry group yesterday, Tom, who likes to visit rail yards and even occasionally hop a train, to get a feel for economic conditions reports that rail traffic remains anemic and there are thousands of railcars sitting, rusting in storage. So no early signs of pickup from that perspective. So for those of you who missed the rally, I say sit back and relax, you’ll get another shot, unfortunately maybe at even better prices.

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