Daily Investment Interpretations
November 20, 2008
Well, the stock market broke down again today. The NASDAQ
pared 70.3 points (-5.07%),
the Dow exfoliated 445 (-5.56%)
to close at 7,552, and the S&P 500 parted with 54.14
(-6.71%) to end at 752. Oil
hit a new low of $49.62, and gold rose to $748.70. The VIX
panicked and closed at 81. The proximate cause of this further
ecdysis was the
fact that Congress dropped the idea of bailing out the Big Three before
Congress adjourned, but has set a deadline of December 2nd for a new plan.
Besides the bailout breakdown, there was a smörgasbord of bad news. For example, J. P. Morgan
announced that it will cut 3,000 jobs, whereupon its stock fell 18%. Jobless claims
jumped to their highest level since the early 90's.
To the best of my knowledge, this is the worst percentage pullback for the S&P 500 since the Great Depression. At 7,552, it's now down about 51.5% from its 1,555 high last October. Equally significant is the speed with which this has happened, and the lack of meaningful rallies along the way. The S&P 500 has fallen from 1,300 to 750, or -42%, in 2½ months. That's really tantamount to a slow crash.
My personal notion is that we might witness a bounce after two days of relentless price erosion.
Kevin Depew sees conditions ripe for a trading rally: Five Things You Need to Know: If This Is a Low, It May Hurt You.
This week's issue of Businessweek includes a "Business Outlook" page by James Cooper entitled, "The Profit Squeeze Has Only Begun". Mr. Cooper explains that stock analysts are forecasting that fourth quarter 2008 earnings on the S&P 500 will rise 24,7% from their 2007 fourth-quarter levels even as third-quarter 2008 actual earnings fell 14% from last year's third-quarter earnings. Analysts are also forecasting 2009 earnings that are up 13.1% from 2007 earnings. Obviously, this is wildly optimistic, and Mr. Cooper notes that the stock market has dismissed this as nonsense by falling through the floor. He also predicts that earnings will get considerably worse before they can get better. He concludes,
"Based on analysts' upbeat expectations, stocks look cheap right now, but in this harsh business climate, earnings disappointments could extend far into 2009, especially if the economy fails to mount a solid recovery."
I found the following material, posted by "RonPaul08" on the comments page of this article: Commercial-mortgage delinquencies to double: Fitch. The total debt here adds up to $53.668 trillion. (I don't see any indication that this also includes unfunded Social Security liabilities.)