A plan to save the world -- part two, or is it three?
When Paulson came out today and stated that his earlier plan to save the western world was not working, he offered up a plan "C" (or is it "D") to relieve pressure on consumer credit, scrapping his earlier effort to buy the value mortgage assets.
No matter what happens or what the next plan is here, are the 3 reasons I believe stocks are headed lower.
* Number one: The trend in most all stocks is down. This trend is likely to persist and last longer than most people imagine.
* Number two: There is no plan. The government is floundering and does not have a plan that is going to work anytime soon.
* Number three: We have a lame-duck president, and nothing is going to happen of any consequence until President-elect Obama is sworn in.
Okay, so let's look at the first problem. Most people trading the market today have had no experience in a prolonged bear market like the one we had in the '70s. That bear market was brutal as it did not let anyone out. Over the course of the early '70s, the bear market basically wore people out to the extent they eventually just threw in the towel. We believe the market is going to make another new low and take out the recent lows that were put in place in early October. Unlike a bull market that constantly needs positive news to drive it higher, a bear market just falls under its own weight.
The second problem we have is that there is no concrete plan in place to rescue the economy. In fact, the domestic and global economic issues are so great that they are overwhelming in scope. The Paulson plan, which is being changed and will continue to change, is a major concern and creates significant uncertainty in the marketplace. Only when we see the new regime take office this coming January will we see any meaningful changes.
The third problem we have is a lame-duck president. This is a major problem for the markets as President-elect Obama can not make any sweeping changes until he is sworn into office. Yes, he may hit the ground running, but the reality is, it's not for over two months from now and a lot can happen to the market in two months. The key levels that everyone is going to be watching for are the recent lows we saw in early October. If these lows are taken out, and I expect they will be, it's going to push this market and everything else down to new lows. It will exacerbate the housing situation, the unemployment situation and most of all, the morale of the country.
Having lived through the bear market of the '70s, I know firsthand how difficult the journey we face is going to be. Now this may seem like a very pessimistic outlook and in some ways it is, however there are always opportunities to make money in the marketplace. These opportunities may not be in stocks, it may be in forex or the commodity markets. Our goal on this blog and with the markets is to point you in the direction of where we believe those opportunities are.
So buckle your seatbelt. I think we are in for a bumpy ride.
Adam Hewison,
President, INO.com
Co-Creator, MarketClub
I believe we are in for some trying times over the next four years. Basically there has been no change in Washington. We have the same clowns in congress as before the elections. The president is different but he is arookie in this position. Congress may think they can run rufshod all over him as they did president Carter in the 70's.Why the American people think the congress that created all of our problems in the first place can fix them.Giving power to control health care,energy policy,bailouts to anyone just for the asking,printing more money to keep every one happy is just insane. Just because a person is elected to office doesn't make him all knowing.I may be wrong I hope so
I'm totally agree with Steve. Hey...It's doesn't matter as a swing trader like me. Up or down, but i like all of those comment.
Good Trading to all.
Don't forget Adam's final points. There are always opportunities to make money trading stocks,futures, and currencies, whether they are going up or down. Strongly trending markets are fantastic opportunities to make money, even when the trend is bearish
Hi Adam,
I liked your article very much and I do agree with the fact its going to be tough times ahead. but I was just trying to look at the positives just wondering what are your views on real estate and equity what do you think which one will start the uptrend move earlier after the consolidation phase. you views are highly valued.
Thanks for Keeping us all enlightened with your views. 🙂
Thanks,
Daksh
None
When will they find out that Poulson is guilty of negligence from the day he came to office.
I read your article and agree. I am a new investor with very limited capital which is mostly
A very small IRA which I am in the process of rolling over.
I am a single mother with one child left at home and work in the healthcare industry. I had been working as a travel nurse until was laid off late Oct. I am a little afraid of what lies
Ahead for our country and globally. I have thought of taking my pennies and investing in gold and just hoard until time which I may need.
I will take a fuil time job in a small area (fewer nurses) and specialize to combat the whatever
We are going to face. Have chosen an area with a lot of money in the community.
Thankyou for your time in writing
This and other articles.
Confirms that I am making proper
Choices.
Jamie Tye
I think that before this economic downturn is much older we will come to see the 1974 version as a blip. We probably need to go back to 18th century to find anything comparable.
I( also don't think that politician boondoggles will, or ever have, solved anything. Ditto central banks whose only real purpose is to enable politicians to counterfeit the currency. We need sound money and less credit to generate confidence and that requires a bank reserve asset that cannot be printed. Populist politicians will not allow this but events may sweep them from office in most countries.
With the economic conditions in a deepening recession, lower stock prices probably being led by finacials is a given. The interesting focus is now, I believe on the outcome of the US dollar. The US Feds beginning in July 7th, started borrowing and currency swaping massive amounts of US dollars from foreign central banks,for the Freddy bailouts, which are now facing repayment. The only way America has to repay these loans is through US government treasury auctions. These massive auctions will begin in Dec to repay the 6 month July 7th loans. Some $550 billion is due. The question is who will buy? England, Germany, Spain,Mexico, France, Russia, China, either are facing a falling currency, or weak economies of their own.That leaves Japan which might buy some, but the rest will fall on America's investors and financial institutions. Which bides the real question? Are these 2 able to purchase US debt? The outcome will be interesting, but yield curves are pointing to alot higher rates, and maybe a much weaker US dollar.
If you consider the USD$ is up (no real ecomomic backing) Physical gold is in sort supply (Spot is down off $900+ since Oct) DJ moves 800 down 800 up in one day and 40%+ off this year.
I agree with the previous comment on FED intervention. Looks like the George Bush free market is not so free at this time.
At a surface level, we should be seeing gold prices weakening as the economy falters and the USA (and other countries) increases money supply. Gold, then, becomes our hedge against cheap money. But contra-indicatively, the price of gold also continues to falter. I'm guessing but could it be that those countries which actually keep gold supplies are selling them off (into the market) and therefore helping to diminish the price. If so, there will be a limit. At any rate, can anyone opine on this subject and can you tell me where I can get information on who is selling and how much (volume)? Thanks, in advance, Robert.
I believe the market will stay in stagnation for at least another 6 months we might hit one more low, lower than the first one we had in October. The new President to be will come to into Office soon, but will be so overwhelmed that even he won't be able to change anything either; After all I believe his doesn't have the experience or knowledge to lead our great Country out of its own turmoil. I believe he will just add insult to our Misery! It is just ashame that the last President got us in such a mess that the wrong person was picked to run our country because the last President happened to of been a Republican that put us here in the first place. This Election has pulled the wool over a lot of peoples eyes. This new President was picked on Race which does not even begin to help what the problem is in the country and that is so wrong. The American people will wake up when the Office and our Beloved country is turned over to a muslim born person and the tide will turn toward an even greater Tangle of the Web then what it is all ready in. If the Man was purple with pink poka-dots that would of been just fine if he really was for the well being of our country but you all just sit back and watch! The next thing is Saudia has been lying to us about how much oil they have for years. I do remember the 70's and the 80's and Sauda still say they have the same amount of oil reserves with out new drilling; Math just don't add up and OPEC is lying to us as well. All sound to fishy to me to believe. At least Cheveron has hit oil offshore of Lousiana that is one good thing going our way as Americans. We need to put our own people to work drilling right here in the Good Ole USA and tell OPEC and the Saudis to keep there lies to themselves or to sell it to other countries. We also need to take our job back from China; putting a stop to the greed of the rich and put our own people back to work ( hint there goes unemployment problem). Our country has been to nice for too long on helping other countries that we forgot about our own starving people and our own beloved Country and what we stand for. We have been rode over by everyone outside our country and the best part is that they all Hate us Americans who had helped them so many times. I pray that God almight watch over our country and take control because we have forgotten not only our on morals but what we as Americans are suppose to in (God we Trust) stand for. So much for our Mighty Green Back and the Revolutionary war.
It will be interesting to see what impact the Chinese economic stimulus package has on the price of crude oil as well as other commodities, such as copper and aluminium.
Given that their $586 billion package is focused on housing, transport and infrastructure projects, this suggests a rise in demand for crude oil and the base metals.
And as the world is far more interconnected today, I think we cannot discount the systemic boost to the rest of the global economy from this Chinese package.
Perhaps the new locomotive of the world economy is China, followed by the other BRIC nations.
Remember too that OPEC has reduced crude oil output by 1.5 million barrels a day and Russia is now getting anxious about crude bumping along at a relative low of $60, which is not good for their resource based economy.
In the late 70's, I wrote a piece of Futures magazine called "Prices and the Prime" with a chart that showed the rise is commodity prices tied to the rise in interest rates. This time around, the disconnect was shockingly noticable, and the answer is obvious intervention by the Fed. The battle between inflation (prices rising) and deflation rages on, but deflation is winning. The old saying is, 'You can take a horse to water, but you can't make him drink.' Burned consumer are scared to death, and are trying to get debt free and their financial houses in order. Trillions in purchasing power are gone, as well as confidence. I doubt there will be another round of inflation, as the financial infrastructure is imploding. Sell everything.