Stock Prices
Stocks tumbled over 300 points to disturbingly low levels (read Tonight’s Dinner Conversation for the significance).
Bond prices soared, with yields falling to near term lows. These low interest rates provide an opportunity to refinance a mortgage, and also signal that something bad is happening out there.
The Euro gained back some of its loss, but this can be considered only a technical rebound.
Gold has been hammered the last two days, and is now in a position for additional purchases with spare funds. Near term support levels are at $1160 and $1140.
Oil and gasoline are low, and are a positive sign for lower gas prices.
In the news today….
Foreclosures – could be in the headlines again soon. 10% of all mortgages in the USA missed a payment (were in default) in the 1Q 2010. This is up from 9.1% the previous quarter, and this is an ALL TIME HIGH. Now, that should really scare you. We have just come out of the homebuyers bailout season where people could get thousands for buying a home. Now that incentive is gone. When the auto boondoggle ended, the auto sales plummeted, and I expect the same to happen over th enext 3 months in home sales. On top of that we have more inventory coming onto the market – in other words, these foreclosures will be houses for sale soon, plus banks have been holding back on their houses for sale as they wanted to prop up the market to get as much money as possible. The 10% delinquencies is predicted to turn into 8% foreclosures – or 4,300,000 houses. Now we’re talking!!!!!
Europe – what’s the latest over in Euroland?? Well, the Germans banned “naked short sales” which sounds kind of dirty to me, and it had unintended consequences, as all politically motivated decisions do. First of all, it spooked the markets – both stock market and Euro market – and both crashed as it said that the Germans thought speculators could destroy the Euro and make a killing. Second, it drove investors out of the German market, and across to the Swiss market where you can still do naked shorts. So, what did it accomplish? It pushed money out of Euroland – and that was unintended. This is a great lesson in unintended consequences. The German Finance Minister stated today that the Euro currency market was “out of control” and new regulations were needed to control it. There was another protest march in Athens today, but much smaller and more peaceful than the one which resulted in the death of 3 people, one of whom was pregnant. These deaths have put a damper on Greek protests as the violence was too shocking to the average protestor. And, as you can guess, tourism in Greece is down significantly, and tourism brings in 20% of the Greek GDP.
European and US Debt – this is where all the problems are coming from. You can see that Greece is out of control – but who is second? This chart is very telling, and bodes very poorly for the US.
Jobless Claims – came in worse than predicted (440,000) as they are 471,000. Bad news for the economy. And, it is the biggest jump in 3 months if you think it’s just another number.
Philadelphia FED – has leading indicators coming in worse than predicted. For your education, here is what makes up the leading indicators:
FED PRICES-RECEIVED 3.5 VS 1.0 last month
FED EMPLOYMENT INDEX 3.2 VS 7.3 last month
FED PRICES-PAID INDEX 35.5 VS 42.7 last month
FED NEW ORDERS INDEX 6.1 VS 13.9 last month
FED FACTORY INDEX 21.4 VS 20.2 last month
T D Ameritrade – had a major computer problem today and some customers were unable to log onto their account while the market was tanking. I am bringing you this story as an example of how bad things could get if the stock market has a route downward, and everyone wants to get into their account to sell at the same time. So, plan ahead and get yourself in a safe, cash position before it is too late. However, it is your decision and it depends on how you think the future will play out.
Tonight’s Dinner Conversation…..
Stock prices – will they be going up more, or have they topped out, and start to decline. Here are my thoughts:
First, I want to point out that there is no way to really predict where the stock market is going to go. I believe in fundamentals, and that means the long term – more than one year – of the potential of the underlying companies to make and to grow profits. That involves looking at the macroeconomic statistics, and asking myself if these statistics support a growing US company environment. In particular, it means – will individual Americans be spending more in the future, and what will make them do it? For example, more confidence in their job, and more expendable income.
Second, occasionally I look at technical indicators of the stock market, and there are very few indicators that I believe in, as most of them have proven to be very poor indicators if you are going to wager you own hard earned money. The Dow Theory (you can google it and learn a lot about it) provides a fairly reliable indicator of market turns – in other words, when will the market change direction from moving up to moving down, and vice versa. Also, the head and shoulders pattern has a fairly reliable history – but not nearly as good as the Dow Theory.
So, where are we today? The DOW (and all the other indices) have moved up dramatically since the lows reached by the plunge in stock prices – ending in March 2009. Since then, the DOW has come back in a straight line up – much to the chagrin of many predictors. I, personally, was wrong in my prediction of a double dip in stocks.
Macroeconomics says that the US consumer is not in a good position to buy like a drunken sailor. People are worried about their jobs, but they are less worried about their 401Ks because stock prices have rebounded, and it feels like the good old days. House prices are stable – some areas going up, and some areas still going down – and this gives a little comfort to consumers. However, the absolute value of their home still stinks – so they don’t feel like getting a “home equity loan” and spending like a drunken sailor.
We learned that the stock market is “manipulated.” These are my words, not the SEC’s; but they can’t figure out how the DOW fell 1000 points in 30 minutes yet, so it must be speculators, aka manipulators in my lingo, who were maiing a fast buck. I think the SEC should “follow the money” and it will lead to the people who profited most from this amazing turn of events. Most of all, it doesn’t provide ANY confidence in the stock market. This iis like a cloud hanging over the market from the individual investor’s viewpoint.
Technically, here is what the Dow Theory is saying…. SELL EVERYTHING…..kind of scary right? It says if the DOW goes through the May 7th lows of 10,380, then we have a confirmed bear market and get out of the way. It also confirms the overall bear market we have been in for the past 4 years. In other words, the trend hasn’t been broken to the upside – it is definitely still going down with a big Bear Rally just finishing. I guess we’ll have to wait and see. (PS – the DOW is 11,126 as I write this article right now). If it closes below 10,380, and it sure looks like it, then we are not only in the some big DOWNS, but we are in for a CRASHING market. Stand aside, and let other people take this loss.
So, where is my prediction – it’s DOWN for stocks. One way to read a massive sell off in stocks is that the stock market is trying to TELL YOU SOMETHING. That something is that there is a major event heading out way that no one sees right now. Well, that’s part of the tea leaves. Stocks can be a precursor to events – in other words, stocks move before the news comes.
Will we be able to recognize the US markets at the end of the year???? We’ll see.
Here are the last numbers for today:
Dow Jones 30 Industrial – 10,068 (down 376)
10 Year Treasury Bond – 3.26% (down 0.05%)
Euro – $1.2507
Gold – $1188 (down $5)
Oil – $69.24 (down $0.61)
Gasoline – $2.06 (down $0.05)
