January 7, 2009
The markets swan-dived today.
The ADP private-sector jobs report showed a decline of 693,000 jobs in
December--well above the 500,000 that had been expected. The full
employment report comes out on Friday. Also, the Congressional Budget
Office forecasts a $1.19 trillion deficit for Fiscal Year 2009, not
including the incoming administration's fiscal stimulus package.
(Presumably, the fiscal stimulus package isn't included because it doesn't
yet have official status, and hasn't yet been finalized.) Overall, this
exceed $1.5 trillion, and would be more than three times greater than any
previous federal budget deficit. Meanwhile, analysts warned that Alcoa may
have to cut further, and further reductions in earnings estimates
continued to appear among other industries.
to close at 1,599, the Dow tumbled 245.40
to close at 8,770 and the S&P 500 tacked on 28.05
to land at at 907. Oil ended the day down $5.95 to end at $42.81
a barrel, and gold rose $8.20
to $841.70 an ounce. The VIX jumped nearly 5
points to 43.39.
notes today that the planned economic stimulus package, to be delivered
over a two-year time frame, will deliver, at 3% of GDP, a 3% boost, against
the Congressional Budget Office' projected 8%-or-greater shortfall in GDP
over the next few years: Permanent Link to More stimulus notes.
(See also Lots of Buck, not Much Bang.)
warns that Too many newsletters have decided that the bear market is over.
He thinks that the investment advisors he tracks have been too quick to
move to a fairly strong bullish perspective on the markets.
One corporate investment expert interviewed today
argued that in this recession, companies have been much, much quicker to
lay off employees in order to stay ahead of the recession than they have
in past recessions. As a result, when the economy bottoms in the second
quarter, it will be followed by a very rapid V-shaped recovery, as
companies hire back as rapidly as they've laid off.
So let's see... If the economy is going to bottom in
the second quarter, then there's no need for a fiscal stimulus package or
other Keynesian measures to re-energize the economy. It will take at least
until February and maybe longer before Congress passes a fiscal-stimulus
bill. Then at least a few more months will pass before the first of that
money actually gets into the economy, with the remainder spread out over
the next two years. No more than half the fiscal stimulus will reach the
economy before the end of 2009. But the stock markets are telling us that
(or so goes this story) within a few months, the economy is projected to
recover on its own. This investment advisor says that there will be a lot
more gloomy news during the first quarter as earnings reports come out,
but that the markets have already discounted this bad news, and will
gradually rise even as the economy continues to fall. (Since the stock
market predicts economic bottoms by an average of six months, then if we
think that the stock market hit a cyclical bear market low last November
21, we might see this recession start to mend by late April, 2009,
although it could also be May or June of this year.)
Obviously, there's a disconnect between what these
swamis are saying and what most economists are opinng about the
advisability of a quickly enacted, multi-year, massive fiscal stimulus package.
Callaway: Bear rally over, the great dying begins in corporate America
This article doesn't contain exactly, for me, what its
title seems to imply. Mr. Callaway begins with the observation that the
"The freight train of job cuts, plunging earnings and massive
spending cutbacks set to hit the economy was, thankfully, pushed back a
few weeks" during the holidays, giving us a much needed respite to
catch our collective breaths. Now, though, many small-to-medium-sized
firms will go out of business. Mr. Callaway suggests that the economy will
bottom and turn up again after the worst of the quarterly earnings season
is over... in other words, sometime in the first quarter, or at least
sometime during the second. The title seems to me to be implying that
we're in a bear market rally, but if the economy is going to turn around
within the next few months, then our current rally isn't a bear rally but
(it would seem to me) the beginning of the next cyclical bull market.
Here are a few articles that might complement those
Todd Harrison: Swami of the
Street's a tough gig this year
One notable quotation: "My sense for 2009 is
that—all else being equal—we’ll see wild movements and a wide range,
perhaps with S&P 600 as a nadir and one (if not two) 20% bear market
rallies filled with false hope and empty promises."
In another article, The Ultimate Bull
Bennet Sedacca summarizes the current consensus of the investment crowd
(the crowd that "is usually wrong at the extremes"):
- Stocks bottomed on November 20th-21st;
- An economic recovery will begin in the second
half of 2009;
- corporate bonds are a buy;
- stocks are cheap;
- The stock market is now discounting all the bad news - which is
surely a sign that the worst is likely behind us.
Things You Need to Know: From Generation Boom to Generation Sav-A-Lot
Op-Ed: Default on Social Security Bonds
Five Things You Need to
Know: Get Out Now!
Perspective: The Calm After the Storm?
A Protracted Bear
Survival of the Weakest
No V-Shaped Recovery
Five Things You Need to
Know: "Economists" Embrace Government Spending