CapitalistMarks

The DOW blows past 10,000! Now what?

Posted on 28. Oct, 2009 by scott in economic daydreaming, markets

All I have heard lately is about how strong the stock market is and why it will keep on making new highs (some contrarians disagree but they are a minority).

Everyone wants to know where it will go from here with the great earnings reports of the last few weeks.

The real question is what do reports from companies that are subject to consumer whims tell us.  Not what the net income is but what gross revenues and future forecasts tell us.

The answer to these questions provide a good map of the market’s direction in the next month or so and those answers are not good.  Forecasts are cautions at best and worrisome to the bulls, though they talk around them.

On top of this, add the recent consumer confidence number put out by the University of Michigan (90 or above indicates growth).  At 47.7  (for early October) this was significantly lower than the 53.4 number in September, showing a real decline in confidence, and lower than economists had expected.

Wow!  Economists got this wrong?

And another part of the puzzle fits right in.  More bad news.

All of the above tells us that the retailers all important Christmas season is not going to turn out as positive as many hope.

Another huge negative.

Does this mean that the 10,100 plus that was reached on the DOW is not just a step up in the continuing steep incline?  Is it possible that the market has it wrong too?

The DOW is down 3-4% from its intraday high of a week ago and down 1% today as I write.

All of this bad news is undoubtedly driven by the high unemployment that folks are finally realizing is critical to our country’s health.

What with 15 million unemployed and another 10 million or more that have quit looking for non-existent jobs (or taken low paying part-time jobs), it is no wonder that confidence in our economy is beginning to decline once again.  Furthermore, this does not feel like just a ‘blip’ on the overly optimistic upward charge.

How could it be with nearly 20% or 1 in 5 of our citizens out of work or underemployed?

Barring real government action this feels like a substantial decline is in the works.

Are they (the government) on top of this?

Not really.

I read today that the government will release figures this week to show that the economy is out of depression and will show a GDP that is growing at a 2-3% rate for the third quarter.  The White House and Congress focus only on this positive and don’t seem to be forward looking.  A real danger.

GDP may be positive for the third quarter but if so it is probably the ‘blip’ I talked about earlier.  I don’t think GDP growth is sustainable unless something concrete is done about unemployment.

I wrote months ago that I expected the DOW to hit 10,000 by early summer and then take a big dip before continuing on to 13,000 by early 2010.  So I was a few months ahead of things.  This scenario is still possible but just doesn’t feel right.

Too much bad news is going to push the market down.

A 20% drop in the markets could well reflect the sentiment on the street and might be necessary to force Obama and his economic crew to focus primarily on unemployment rather than the other  ‘optional’ legislation they are pursuing now (you know, the kind of things that have no IMMEDIATE impact on this long and drawn out recession — the worst since WWII).

It would be a good thing if Obama and the Dems pick up on this but if not done right away it could prove too late to help.  Unless Unemployment is addressed very soon and directly we could see this recession turn into a “W’ with a double-dip back down to recession level GDP #’s and with the DOW dropping back to the 7000 range.  Worse, this might cause further contraction by consumers and  really lengthen the recession.

Not very good news but the prospects are real unless addressed tomorrow!

What are the chances with this President who seems so reluctant to make important decisions that might affect his popularity?  Or a Congress that is consumed with maintaining a democratic majority?

You figure that out (and once again think about term limits).

As for me?  I sure hope our ‘celebrity’ President figures this out right away and that he gets Harry Reid and Nancy Pelosi on the employment train!

You had better hope so too.

Thanks to flickr’s doctor who for the photo

Tags: consumer confidence, double dip recession, DOW 1000, DOW 13000, DOW 7000, President Obama, unemployment