The Roller Coaster Ride Continues
Step right up, folks, and come on aboard! The stock market roller coaster is leaving the platform for another exciting, thrilling and fun-filled trip through the land of gains and losses. It’s time again to break out the Valium, buckle your seat-belt and hold on tight. After relatively smooth sailing since reaching its bottom in March of 2009, the stock market is once again headed into a period of wide swings and new levels of unpredictability. The daily economic news reports and corporate earnings releases are seized upon by investors, who are willing to bet the farm that either a new age of prosperity is dawning or that the world is coming abruptly to an end. Yesterday, stock market investors flocked to the “buy window” because GDP growth for the third quarter came in at a healthy 3.25%; however, today stock market investors are trying to unload everything they own because consumer spending in September fell by 0.5% . Today’s “sell mood” was further strengthened by a Reuters/University of Michigan report that said consumer confidence was still in the tank. If the stock market could be subjected to in-depth psychoanalysis, the prognosis would likely be that it “highly conflicted”. In other words, it doesn’t know whether it’s coming or going.
Unfortunately, nobody has a crystal ball, and nobody really knows what the future will bring. All we can reasonably say is that the economy has moved away from the precipice of collapse to more solid footing. We can also reasonably say that the the economy has reached an equilibrium where millions of potential workers are simply not needed, at least not for the time being. That fact that these millions of workers are not needed is reflected in the “official” unemployment rate of about ten percent. The drag on consumer spending will continue until the unemployment rate drops by a considerable amount, and the stock market will not move much higher until consumer spending increases. This is the conundrum.
For those Americans with significant portions of their 401′Ks invested in the stock market there are really very few good options available, other than holding on to what you’ve got , and weathering the storm. Don’t be frightened too much by wild market fluctuations, because they will likely continue for quite some time. The winners of the “investment game” will be those who are patient, and willing to wait for consumer spending to inch back up, pulling the economy out of prolonged recession. Expect 2010 to be a year of economic “water treading”, without much real growth until 2011.
—Rich
Amazing that the Wall Street ups and downs remain relevant.
Personally I have pulled out any of my stock investments years ago. Can’t say I’m sorry.
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At this point, the discovery of a new moon orbiting Jupiter would be sufficient cause for a sharp selloff.
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Politicus,
In retrospect, you made a good move. I wish I had a time machine to go back to December of 2007.
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Bluzdude,
Oh no, are you suggesting there may be another Jovian moon? I’d better go call my broker immediately!
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I moved most of my portfolio out of equities back in August 2007 when I was laid off the first time. All upswings since then and up until now (in my opinion) are a “suckers rally.” With higher taxes looming next year, companies are going to tighten up again and so are consumers. When monetary velocity picks up (banks are sitting on MASSIVE reserves) and interest rates start to rise, I fear a double dip recession with high unemployment.
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It is a difficult situation, and I feel sorry for the people who are getting near retirement age and didn’t sell years ago. Actually, I feel sorry for us who still have time too. It’s hard to know where to put your money these days and most importantly it’s hard to know what companies are trustworthy enough to be worth investing in. I’m hearing the 2011 time frame too, so we’re just sitting tight until then.
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Hyper-inflation is next.
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It’s amazing that some boys and girls on Wall Street can infect the world economy. Still no regulations in the USA regarding the financial markets. A shame. But it looks like Europe, Asia etc are going their own ways now.
Dutch companies are selling their assets in the USA as they don’t want to get in problems again. ING direct is a good example (only operative in the USA, and with succes – therefore for Sale).
EU zone is ok, with exeption op Spain (too long driven by tourism and real estate industry)
http://www.ft.com/cms/s/0/5c76987e-c543-11de-8193-00144feab49a.html
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I think the question is rather,where do we go from here?China now dominates the World economy, including finance. They over the next twenty years will determine who remains prosperous and who does not.At the moment we in Europe and America remain the principle customers of their manufactured goods.China does not take a short term view and uses different strategies for dealing with different continents.In the West therefore I think new approaches to old problems will have to be digested and many will not be palatable. Your new President has already dumped Britain and this I believe is probably a good thing for both parties.The coming years will tell.simon
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I so agree so I’m buckled up and glad I don’t need my 401K any too soon.
Dorothy from grammology
grammology.com
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Isn’t is interesting how so many of the old school ways come tapping us on the shoulder and say”I told you so’.
It was not so long ago when my grandmother cursed the banks. She was one of those very cautious and non trusting types when it came to her life savings.
She use to say that if anyone was fool enough to trust a stranger with their life savings they may as well let them raise their children too
I actually read that the times are gearing into the old ways of hiding your money under your mattress as being the best and safest place:)
~D~
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VH,
I do not believe this is a “sucker’s rally”, but rather a stone cold calculation by investors that better days are ahead. Both the stock market and the money market will find their equilibrium levels, regardless of inflation or unemployment.
I envy you for getting out of equities in August 2007, but not for losing your job.
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Tina,
You are right, these are difficult times to know what to invest in, and who to trust. I have little doubt that the America economy is far more resilient than many people think. Within a year or two, the “great recession” will only be a bad dream.
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Harrison,
Not!
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Simon,
The dynamic of the world’s economy has changed considerably since the post-WWII era. New economic powerhouses have arisen, and they will continue to assert their new-found power in ways we never dreamed possible. The gross national products of America, Western Europe and Japan will contract due to competative pressure from the developing countries, and there will be a huge transfer of wealth.
If the people of Western Europe and America attempt to solve the social problems created by shrinking productivity by instituting laws and regulations that thwart innovation and discourage productivity, then we will continue to decline.
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Whole lot of sense in what you say but it’s gotten so complex it’s more than a body can understand … it was a bit different just after war … if you had a good idea, you first went to your friends and then from door to door … telling your story and raising capital. Those who believed in you and your idea became “owners” … and, at least to some extent, shared your passion.
Owning a piece of paper for the purposes of making money based on effective trading in response to changes in circumstance and markets is one thing … being an owner is another.
Like I said it’s more than a body can understand … I worked for two men who started companies in the 1950′s … one borrowed $10,000 from the bank the other went door to raise his capital. Both were very successful and their companies survived them. Both are billion dollar companies, among the very largest … and though actively traded, both are still controlled by the families of those original investors.
Ownership’s one thing, owning stock is another … and management is yet another.
Unrelated and without transition, my father worked but for one company throughout his 47 year career … rising from office boy in one of its regional offices, through the ranks in sales to its chief marketing officer … 20 years after his retirement, we mused that my secretary’s annual salary was more than his at its highest.
Surely there’s something wrong with that picture … like buying a nice home for $30,000 in 1950 and selling it for $300,000 in 2002 … nothing technical about it … it’s insane! it’s almost as crazy as folks getting raises each year for doing the same work!!
Things change, that for sure … all but size of the planet perhaps … the world population continues to increase too, in spite of efforts to control birth rates … because of gains in life expectancy.
It’s all much ado perhaps but it may somehow serve to give one pause … for in addition to wealth redistribution, we must be concerned with the fact that the wealth is being shared with more and more folks.
Though the buying power of my secretary’s salary was far less than that of my father’s … after he retired, his existence was dependent on the successful management of his portfolio … of course it was, the inherent value of money wasn’t stable.
Somehow things must change where the value of our money is protected … surely, if we are to survive we must address this fundamental problem … and obviously many more fundamental problems before we concern ourselves with the technical ones.
Sincere apologies … I have no advance warning with regard to where me mind is going to take me … it’s more than a body can understand. Something just triggered where I just went … not quite sure what!
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We’ve sold some stuff this year, but generally holding tight.
No one really knows what’s going to happen. And the more someone says they do, the less we believe them.
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BarbershopBob,
Many civilizations throughout history have declined due to their inability to address the “fundamental problems” of society. I must admit that this is my greatest fear for America. The largest producer of wealth and innovation in the history of the world is rapidly becoming the greatest consumer of wealth. Year after year our nation consumes more than it produces. American factories lay idle while factories in China and India struggle to keep up with production. In order to pay for its spending binge, America has sold off its businesses and its buildings and the land itself to foreigners. This will only continue as long as America has something left to sell. Just like the farmer who foolishly consumes his seed corn, the day will come when America has nothing left to offer as payment for the goods it consumes.
Presently, the economy of our country is in a state of equilibrium. The supply of goods and services being produced is equal to the demand. Unfortunately, the supply of labor that is needed to meet the demand for goods and services greatly exceeds what is needed. This is why the unemployment problem in America is not likely to go away any time soon.
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You can’t keep printing the amount of money this administration is printing and running such large deficits w/out getting inflation.
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