Daily Investment Interpretations

November 20, 2008

2008-11-20:  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 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.)

Just a thought...

Total Federal Debt: $10,668,000,000,000
Total business debt: $10,500,000,000,000
State and local debt: $2,500,000,000,000
Household debt: $14,000,000,000,000
Financial sector debt: $16,000,000,000,000

Total US population over 16 yrs old: 235 million
% of this population employed: 60%
Working individuals who carry the burden for the debt: 141 million

So, national debt burden per individual is $76,000
TOTAL DEBT per working individual (who carries debt burden):

National average wage for 2007: $40,000.

Now, ask yourself if $40k can support debt service on $380k.

Feel free to give input on these numbers. they are approximations.