(snip)"Interesting first week of 2008 for the stock markets and the U.S. economy. And my guess is that it will only get worse. El Cliffo beckons. And here are 20 reasons why:
1. The U.S. consumers are tapped out. They have record household debt. They have the longest period of negative savings since The Great Depression. They have record mortgage debt. They have record credit card debt. There was a 40 percent increase, year over year, in personal bankruptcies last year, with 800,000 Americans filing under the new, harsher bankruptcy laws. They have no more home equity to use for mortgage refinancings after having pulled out almost four trillion dollars worth of equity out of their homes in the past six years or so. The loan delinquencies and defaults are soaring. The consumer is DEADZO!! And that is particularly frightening when you know that consumer spending accounts for 72 percent of all U.S. economic activity.
2. The Housing Bust. Home sales are at their worst levels in about two decades. Prices are slowly dropping, but that price decline is going to accelerate in the coming year. There is a record inventory of unsold homes on the market. Homes are still laughably overpriced and unaffordable.
3. The Mortgage Mess. This is causing TRILLIONS of dollars worth of losses for the financial sector. It is contained...to the planet earth. Watch it worsen this year as more of those subprime loans and creative mortgage deals come up for renewal.
4. The Credit Crunch: We are seeing tens of billions of dollars worth of bad loans being written off every week by the big banks, which are now loathe to provide easy credit to deadbeats, as they have done for far too long. The U.S. economy has survived by providing cheap money via loans to anyone who could fog up a mirror. That era has come to an end.
5. Total U.S. debt. According to Congress' comptroller general, the total U.S. debt is now at $48 TRILLION. That debt was at $20 Trillion in 2000. This unprecedented debt is, in a word,
unsustainable.
6. Weakening U.S. dollar. The dollar is weak and will continue to get weaker as the Fed cuts rates in an attempt to prop up a sagging economy.
7. JOBS. More than 1 million fictional jobs were created last year through the birth/death computer model. But, fact is, decent-paying jobs have gone for good. More than 3 million manufacturing jobs have gone overseas in the past six years. Watch for more mass layoffs in the financial sector, the real estate sector, the auto sector and even the retail sector.
8. The Iraq Quagmire. More than half a trillion bucks have disappeared into this black hole. The end is not in sight.
9. The DEAD Real Estate Sector: Notice that every homebuilder is reporting earnings declines of 80 percent or more? This is just the beginning.
10. The DEAD Auto Sector. Seems that the only thing that the Big Three (GM, Ford and Chrysler) can do is to close down plants and fire workers. Sales are declining. Losses are astronomical. Total auto sector debt is amazing!
11. The DYING Financial Sector: Citigroup has lost 60 percent of its share value in the past 12 months. And Citi, together with the other big financial outfits, are all writing off tens of billions of dollars every week or so...the price they are paying for lending huge amounts of money that could never be repaid. This is going to get much, much worse. We could see some major financial institutions going bankrupt this year.
12. Massive Price Inflation for NEEDS. Food, energy, health care and insurance are just four categories of needs that have seen double digit price increases in the past year. The government statistical magicians who say that inflation is at about two percent are liars and should be taken out behind the barn and beaten with a two-by-four.
13. RECORD Trade Deficit. When your country stops manufacturing things, you have to import those items. When your currency drops, those imported goods become more expensive. This is the classic double whammy and it will only get worse as the Fed cuts rates.
14. Record REAL Budget deficit. The budget does not include the massive spending on the wars, plus it does not include the massive shortfalls in funding for entitlement programs. More lies by Big Brother cannot hide the fact that the U.S. budget deficit is worsening by the day.
15. Record Disparity between the Rich and the Poor. Plus, the middle class is disappearing. Hope that the richest Americans and the corporate honchos appreciate those TRILLIONS of dollars worth of tax cuts.
16. NO corporate governance. Earnings reports are a crock of Kudlow. Analysts' estimates of earnings are low-ball jokes which allow companies to always beat by a penny. The SEC is toothless, gutless and useless. Seen CEO pay lately? Seen insider selling recently? It's all a big joke being played on the clueless small investors.
17. $100 Oil. High energy prices take a huge toll on business and consumers. We have seen Peak Oil. Get ready for $125 oil this year.
18. Significant slowing of retail sales. This is a consequence of the tapped out consumer. This holiday shopping season was a huge disappointment. More big retail disappointments are just around the corner.
19. The Nasdaq is in big trouble. This stock market is a free-for-all, with most of the action coming from small investors, who are, in fact, speculators. They are getting scared. They are selling. They are going to see a repeat of what happened to that tech-laden speculative market in the massive 2000-2003 Secular Bear Market.
20. Fear. Complacency has ruled the markets for the past five years. Volatility has been contained by The Powers That Be...until the autumn of 2007. Small investors have had absolutely no concern about losing dough. There wasn't a two percent down day on the S&P for about four years. But, recently, things have changed. Fear is still not a major factor. But once the losses start mounting, the small investor might skip fear and go straight to PANIC. Greed, it seems, has had its day.
....These are just some of my thoughts about the economy and markets as we enter the New Year.
As I've said before, the incredible disconnect between the markets and the grim economic realities has been something to behold.
Economic fundamentals do not matter...UNTIL THEY BECOME THE ONLY THING THAT MATTERS.
End of rant. "(snip)



Reply With Quote

Bookmarks