Daily Investment Interpretations

December 3, 2008

2008-12-3:  The markets rose again today. The NASDAQ Composite gained 42.58 points (2.94%) to 1,492.38, the Dow amassed 172.6 points (2.05%) to close at 8,591.65, and the S&P segued up 21.93 (2.58%) to end the day at 870.74. Oil approached a four-year low at $45.95, while gold sagged to $770.50. The VIX dropped to 60.72. 
    November may be worst month in 30 years for U.S. workers. (We'll know on Friday.) Mark Hulbert: Lessons learned from Harvard's 30% endowment loss. Meanwhile, State Street has just announced that it will cut 6% of its workforce, and even Adobe is going to cut 600 jobs. It would seem to me that what's significant about this is that for every job cut, there are several other people who will be impacted by this job loss. Right now, the two industries that are adding jobs are the federal government and health care. Since the first of the year, about 1.5 million jobs have officially been lost from the U. S. economy, while about 1.5 million jobs need to have been created to keep our unemployment levels steady, leading to a shortfall of about 3 million jobs so far in 2008. (The unofficial unemployment rate, including those who have been forced into part-time work and those who have given up seeking work, is alleged to be about 16%... 1 in 6.) More to the point, the rate of monthly job loss has doubled or more since the first half of this year. I don't ever remember anything like this during the 1981-1983 recession or during the latter part of the Great Depression. (I was too young to know what was happening from 1929 to 1932.) Also, I don't ever remember anything like the rate of corporate collapse that we're seeing now. (Of course, we didn't have the Internet then to keep us intimately informed regarding what was happening.) During the Depression, major U. S. corporations continued to function profitably. 
    Of course, cars, tires, etc., last a lot longer now than they did then. 
    This brings me to the Big Three automakers. I don't see how there can be a market for their, or any other manufacturer's automobiles. Presumably, long-haul semi tractors will wear out every few years and have to be replaced, as will buses and other commercial vehicles. Still, I'll bet there will be more of an effort to keep the turnover of vehicles on the road or the farm at a minimum.
    Here are two concurring articles that just appeared a few minutes ago: R.I.P., Detroit and Christmas first, disaster later. In 2005, GM was losing $2,331 on every car it sold, while Toyota was making more than $1,400 a car. GM's average hourly wage was $73 an hour; Toyota's was $48. One eye-opener in the second article is the phrase, " ...when the depth of the problems in 2009 is only just beginning to be perceived." The author, David Callaway, editor-in-chief of Marketwatch, concludes, "Will there be a Santa Claus rally in stocks this year? Depends on whether his sleigh was made in Detroit." :-) 
    From Minyanville: China First to Recover from Recession?  
    Also from Minyanville comes this: Market Valuation vs. Real Returns. What the author concludes is that on an historical basis, given the S&P 500's current P/E ratio of 14.9 (I assume he's referring to the S&P 500), it's in the middle of the normal P/E range, with only average real returns expected for the next ten years. (Based upon the super-bear market concept, I'd bet on below-average real rates of return for the next six-to-eight years. Since the next four-to-two years would fall within the next super-bull market, that wouldn't be inconsistent with his ten-year average real rate of return.) But none of this reflects the sudden, precipitous rates of decline of the world's economies. Average economic patterns don't describe what we're currently experiencing.
    The more I look at and think about this, the more it looks as though what governments are doing isn't thwarting the downward spiral of layoffs, leading to declining sales, leading to further layoffs. And it takes months of calendar time for these layoffs to send people out the door, and to inspire further layoffs. Also, we started from a fairly fat-Fiscal stimulus measures later this month or early next year might stem the tide, but at the moment, the layoff announcements keep coming.
    Here's Michael Ashbaugh's Tuesday technical analysis: Ashbaugh on S&P correction. His conclusion: stay on the sidelines for now.