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We're close... very close to a peak. I said back on March 4 and March 5 that we'd see a heck of a run and that as we got near Dow 10,000 that it would be time to get out. (Look back at those posts) That time is here. Dow 9600 right now with the S&P at 1030. If the S&P breaks above 1050 we have another 10% up move to go. If it doesn't break above 1050 we saw the peak this week. This coming up week and next week will be the tell all. Yes, really.How will it play out? I don't know. I don't imagine a cliff dropping plummet at least not like Oct 1987. Instead I see a rather gradual decline. Everyone that has been "buying on the dips" the past 6 months will continue trying what has worked so well, but instead we'll continue a slow melting process that keeps them buying in hopes of the move back up. And in the meantime the folks shorting the market that have been getting burned the past 6 months will be too gun shy and afraid to make big bets because they've been screwed over so many times.Here's the thing everyone, and I know I keep repeating it but NOTHING HAS BEEN FIXED! The gov't has thrown trillions of dollars into the banks and the economy but that's all. Accounting rule changes and smoke and mirrors is not a fix. The problems are still out there... over leveraged banks and consumers. If you look closely at the gov't reports that come out, the consumer is dead. The only spending is being done by the gov't and that can't last forever, nor is it enough to build a strong economy. The consumer is 1) tapped out and 2) scared. Scared of job losses, scared of losing their homes. The Cash for Clunkers thing was the biggest fiasco. Get people who have cars that are likely paid off to turn them in for one that will require $300-$500 a month car payments for the next 4 or 5 years. And how many of those people thought about the fact that their auto insurance would double or triple also? Those 700,000 people that did this now have less spending money for the real economy. Not to mention the fact that if car dealerships had people lined up out the door of the showrooms, do you really think they came down on the prices of the cars? So guess what, you didn't save a dime.Anyway, we're close to a peak. Either in the next 2 weeks or after 1 more 10% run. In either case, it's time to start positioning yourself. The bottom of the next wave could possibly just be a test of the lows back in March (S&P 670) or it could be far worse. Have to wait and see how bad things really are.Commercial real estate will wipe out another 1,000 or maybe even 2,000 banks. Local, state and federal gov't revenue streams are WAY down which will mean higher taxes to make up for it. Don't be worried about inflation yet, that'll come in a few years. Be worried about deflation for the near term.Now that the baseless rally and euphoria are peaking I'll start posting my thoughts along with tidbit articles that I find. I simply had to wait for this phase to play out.A friend of mine kept asking me "Are you back in yet?" Nope... I didn't want to risk my retirement money knowing that at the best we'd still be around 30% below the high that was set in October 2007. Sure, I wish I'd caught more of this rally. Even though back on March 4 and March 5 I said this would happen, it even shocked me how impressive the straight up rally was.
I couldn't have said it better myself, and I've been trying. The bottom line is that stocks and the economy can not and will not get back to where they were in 2007 any time in the near future. Everybody is tapped out. And the ones without jobs are just trying to survive. The consumer is 70% of the economy, don't ever forget that.http://market-ticker.org/archives/1327-Retail-Sales-July-They-STINK.html
I happen to have a 1997 Jeep that my 18 year old step-son drives that we originally bought used in 2001 for my wife. Passed it on to him 2 years ago. Runs great, over 150,000 miles. If I were to try to sell it, maybe I'd get $1,500. I gave a fleeting thought to trading it in to gain an extra $3,000 but then I did some deep pondering.1) It's a sellers market right now. Do you honestly think the dealerships are giving any decent discounts off the price of cars right now when they have a showroom full of potential buyers? There goes the "extra" $3,000 I get for the trade-in2) If my step-son were to buy a simple, modest vehicle say with a $15,000 sticker price on it and finance roughly $10,000 for 4 years, he'd pay appox $1800 in interest. There goes over half of the "extra" $3,000 I get for the trade-in on top of the lack of price haggling.3) Right now, he's only carrying liability insurance on his "clunker". No reason to pay for collision insurance with a deductible on the Jeep. How much extra for insurance on a new car? A heck of a lot more than he's paying right now.4) He gets saddled with a car payment (he doesn't have one now, we gave him the Jeep free and clear). He gets saddled with probably a tripling of his car insurance. Back when gas hit $4.00 a gallon he got on a kick about wanting to trade the Jeep in for a more gas efficient vehicle. Makes sense, the Jeep only gets about 17mph. I gave him an assignment. If gas is $4.00 a gallon and he uses 500 gallons of gas a year, tell me how much you'll save per year if you buy a car that gets double your current gas mileage. He did the math and came back to me and showed me what I already knew... it would take 6 years to break even if he bought the used car for $6,000 that he'd found. He never brought it back up again, and of course gasoline drifted back down to where his break even point would have been another couple of years.Sorry for the rambling, but the bottom line is Do The Math and think things through. I didn't even touch on the fact that of course the gov't (taxpayers) are paying for this. And the fact that these people buying new cars aren't able to go out to dinner, go to movies, spend in other ways for the next 4 or 5 years as they deal with new car payments and increased auto insurance.I'll also be curious to see how many reposessions there will be in 6-12 months.
The markets! And they are hanging up there very well. How much longer though? Maybe a day, a week or a month. How high? S&P 1050, 1100, 1150, 1200??? At 1000 right now after bottoming at 666 in March. Dow at about 9300 right now. 10,000 maybe?In the upper left corner there is a search box. Put in "10,000" and click SEARCH BLOG and refresh your memory of things I was typing in late 2008 and early 2009 about the huge rally that would come once a bottom was hit.Playing out exactly isn't it? Guess what... after a slight pullback soon there could be one more push up that will get us to the magical 10,000 on the Dow or 1100 on the S&P. Then that's it, we're done. The bigger and uglier wave down will begin.I have an email drafted and ready to send to friends and family suggesting that if they held on through all of this that it's time to start scaling out. If they miss out on a 10% move up I aplogize, but it could save them from watching what they have left cut by 50%.Fun with numbers:Dow peaked at 14,165 October 2007Dow bottomed at 6,450 March 2009Dow right now at 9,370 August 2009Even after a 50% rally from the bottom, it's still 35% below it's peak. Almost 5,000 points down.I'm sorry to say that my overall prognostications so far have been correct. I'm much better at the big moves than the daily and weekly ones. But the bottom line is this. It is very conceivable that the Dow will be between 4,000 and 5,000 by the end of 2010. The best case scenario is that we'll just drift slowly down for a few years instead of straight down. I guess you could debate if that's better or not. Maybe ripping the bandaid off and being done with it all would be better.I just ask that you keep an open mind. Don't listen to the cheerleaders on TV. They're the same ones that in 2008 said we wouldn't have a recession!!! The gov't didn't announce we were in a recession until December of 2008 and when they did finally acknowledge it, they said it had started in December of 2007!!! Be prepared, be nimble, be defensive and cautious. I don't want to see you lose your hard earned savings. Yes, I could be wrong, I know that and I hope that I am in that I want the economy and country to thrive. Nothing has been fixed. Everything has been smoke, mirrors and accounting rule changes. That's all. The banks have been getting free money and they've been playing the stock market with it! When that well runs dry there won't be anyone to prop up the markets.Forclosures still climbing, unemployment still climbing, commercial real estate about to be the next shoe. Deflation or inflation? Or both eventually? Real estate pricing going to bounce back? You wish. I'm not trying to be a doomsayer, but think about things, look around... it isn't getting better. We have a lot of years of debt and waste to clean up. It's simply going to take time. The gov't printing money 24x7 isn't going to fix anything. Cash for Clunkers isn't going to fix anything (Hey, I know let's make it really enticing for people to take on more debt! Let's see how many reposessions there are in 6-12 months. Now that those people have car payments, guess what, they can't afford to stimulate the economy on a daily basis for the next 48-60 months.) Watch, listen, learn.... be careful. Please.
A good editorial from a doom and gloomer, but one that has been right for the past 2 years.The best paragraph is:The recently passed "cash for clunkers" program (currently on-hold, as it ran out of funding in one week) is a perfect example of how government policy can make the economy worse. By incentivizing Americans to destroy fully paid-for cars so they can go deeper into debt buying brand new ones, the government weakens an already crippled economy. The last thing we want to do is subsidize Americans to go deeper into debt by buying more stuff. Don't they realize that is precisely the behavior that got us into this mess?http://www.321gold.com/editorials/schiff/schiff080109.html
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