Watch out below

The President of the United States is in town today to talk about the economy, and I am very nervous as to how the stock market may react to his remarks.  It seems every time Mr. Bush opens his inarticulate mouth about the economy and tries to paint a pretty picture, stock prices head south.  I’m sure the president will attempt to reassure all of us that the economy is "fundamentally" sound, whatever that may mean.  Mr. Bush is the man who has presided over the collapse of the US currency, and I for one would like him to admit this historical fact and all of the implications it produces for the longer-term.  Under this Administration the inaction on the alternative energy front has been nothing short of disastrous.  Mr. Bush is at heart an oil man, and perhaps he just likes the current situation.  I would not be surprised to see the market tank today when our esteemed president opens his mouth.

Out of Control

Is it just me or do others feel that things are just getting out of control?  For sure, the stock market is out of control, surging one day and plunging the next.  The price of oil is out of control, with a price of $110 per barrel threatening to fuel higher inflation, that can soon be deemed to be out of control as well.  The housing sector of the economy has been spinning out of control for almost two years now, and the downward spiral seems likely to continue.  Wish I could be more optimistic but I just can’t offer many economic facts to counter being a pessimist concerning US economic prospects for the short-term.  The ray of hope resides in the long-term.  The US economy is not dead or down for the count.  This will likely be a normal type recession followed by recovery.  That’s the business cycle folks.  We may not like living through the downturn(I sure don"t) but you know that’s life.  Of course, investors should attempt to minimize their pain, and be smart in decisions.  If you feel comfortable holding cash I will be the last to argue with you.   

The Stock Market Flu

For the past few days I have been laid up with the flu.  Notwithstanding my getting a flu shot in October the dreaded visitor finally showed up on my door step.  I understand that there is quite an epidemic this year and I know many a poor soul that has had it worse than me.  Even my mild case was characterized with a total lack of energy and low grade fever.  The extreme cases brings high fever that leaves the individual nearly paralyzed and wishing for a merciful death.   Sort of sounds like the current state of the stock market.  To be sure, the economy has problems – the biggest one being the housing disaster.  To the extent that the housing sector is a huge contributor to the vitality of the economy the current malaise can be directly linked to the drop in home values.  Still, the American economy is not falling apart despite what the panic hungry media is trying to sell.  Much like this strain of flu the American economy is hurting now but in the long run recovery is very likely, and so is a rebound in stock prices.

The Need for Nuclear Power

Among the nation’s many economic woes is the soaring price of oil.  Indeed, of all problems now facing the country the ‘Energy Crisis", is my opinion, the most serious of all, but potentially the easiest to solve.  First the problem.  The dependence of the US economy on oil is great and unfortunately growing.  Much of this oil comes from non-US based sources. Oil is needed to fuel the country’s obsession with monster cars and lack of sensible national mass transit alternatives.  At the same time oil still accounts for a significant amount of US electricity generation.  Obviously, as oil prices rise it costs more to generate electricity and that cost is passed on in the form of higher electricity rates, leading to higher general inflation levels.  A total lose lose situation.  When I first started out on Wall Street in 1972 I was assigned the electric utility industry to follow.  At that time nuclear power was the wave of the future.  It was the low-cost option for electricity generation and it was the most envirnomentally friendly.  By some estimates nuclear energy was deemed the power of the future.  Then came Three Mile Island.  The incident at GPU’s reactor was a mere industrial accident which released as much radiation as a chest x-ray. However, it bankrupted the utility, and was the beginning of the end for nuclear power development.  Concerns over nuclear safety were grossly overdone and films like the "China Syndrome" didn’t help matters.  This was very unfortunate, since nuclear power is still the best cost option for producing electricity and is the most environmentally friendly.  It is an obvious answer to much of the energy problem facing the nation today, but while there is talk of some new generation plants no construction has begun anywhere.  This is a national disgrace.  France dervives more than 75% of its juice from nuclear plants.  Japan is also a heavy user.  It’s completely absurd that nuclear power is not at the forefront of energy solutions. 

Darkest before Dawn?

Upon arising this morning I did my daily read of the papers and when I got to the N.Y.Times and the article on the big-sell off yesterday I was ready for the worst.  Indeed, the Times article depicts a U.S. economy on the brink of disaster.  Any reasonable person should sell (or try to) all assets, and then desposit the discounted proceeds in the mattress.  There are no longer any safe monetary based assets.  If you own gold you are very fortunate.  If you own a home you may have a big problem.  The long anticipated correction in the housing sector is having a ripple effect that is causing havoc in the financial markets.  The principle source of wealth for the average American is melting away and not surprisingly consumers are cutting back.  At the same time inflation is back in the form of higher food and gas prices. For me, one of the highlights of this awful week is when George Bush confessed ignorance (not hard for him) to the possibility of gas hitting $4 a gallon by the spring.  The man is totally out of touch and that’s scary and the markets know it. Yes, it was a horrible week and reading the Times story can really put you over the edge.  I have seen and lived through these periods before and it’s not easy.  Timing the bottom is always very hard and precarious. However, I’m getting the feeling we are getting near.  My mother, a hopeless pessimist by nature, had one saying that rings in my ear right now – it’s always darkest before the dawn.  I hope so.

A Big Sell-off is Coming

It’s not every day that the chairman of the Federal Reserve predicts that some banks will actually fail in coming months, but that’s just what Ben Bernanke said yesterday in testimony before a Senate committee. The prospect of bank failures is one measure of how deep the current economic downturn has become. The country has not seen widespread bank failures since the savings and loan crisis of the late 1980s, which precipitated an expensive taxpayer-financed bailout, a major credit crunch and a deep recession in 1990 and 1991. Meanwhile commodity prices continue to soar with oil over $100 per barrel and gold nearing $1,000 per ounze. Yesterday’s poor jobs report was one of the strongest indicators to date that the economy is in a recession.  With all of this negative background I am still amazed that the stock market has held up as well as it has.  Unfortunately I don’t think the market can hold on much longer and I would not be surprised to see a very strong sell-off in coming days. 

A Grain of Salt

Yes, the market was up yesterday following through on Friday’s late surge.  However, I urge readers to take the current uptrend with a grain of salt.  For the most part yesterday’s postive action represented lots of short covering along with some bargain hunting, since most of the economic news remains poor.  Housing remains mired in what can only be called a mini-depression and consumers are beginning to scale back on their purchases of big ticket items.  I expect the uptrend to be very short-lived and beginning today I believe the market will begin to once again trend lower.  Keep your powder dry for the real buying opportunities that will emerge in the coming months.