Why I am still bearish on the market and our economic prospects?


The market is rallying this morning on the Obama administration floating the idea of a “bad bank” to buy the bad assets from our major banks.

Earlier in January I posted about why I am bearish on the stock market, despite a big rally at the time. We have certainly come back to the barn as I had predicted, so to speak.

Here are my current thoughts, and again I hope I am wrong as it’s not much fun being Dr Doom, except perhaps on Halloween:

  • Job losses continue unabated – see my post earlier today on job losses announced since the election. Unemployment will reach double digits.
  • Corporate earnings estimates continue to be slashed – Goldman is now down to $55 for the S&P 500
  • Real estate prices continue deflating – Case Schiller just showed a 3 month annualized drop of 22.3%. Mortgage applications fell 38% last week despite record low interest rates
  • The “bad bank” scenario just masks that most major US banks are insolvent – we still have more problems coming too with credit card consumer debt and commercial real estate defaults
  • The “bad bank” transfers the losses from bank’s foolish lending from shareholders to the US taxpayers.
  • A Protectionism threat is growing – Treasury Secretary Geithner’s inflammatory comments on China are scary – the last Depression in this country became “Great” due to protectionism
  • Consumer confidence fell again down to 37.7 in January. Consumer balance sheets are now down in net worth 20%-50% due to real estate and investment losses
  • Price to S&P normalized 10 year earnings is still at 14x – trough has been 6-7 three times since 1915
  • Huge debt deleveraging needs to continue – excesses in one direction typically lead to excesses in the opposite direction
  • Deflation of almost everything continues as supply overwhelms demand – think about it – real estate, autos, commodities, etc. What isn’t going down is a better question to ask?
  • Reality – from 2002 to 2007, 40% of corporate profits came from various financial activities. Household debt to income and assets went to unprecedented levels
  • We have a very real price to pay for the classic long period of leveraged prosperity
  • Increased consumer savings will exacerbate the problem of defation, as they cut back on purchases
  • I believe we will see S&P 600 before we see S&P 1000
  • At best we are in a “Repression”, but more likely a Depression.

And finally, don’t believe ANYONE  100% who tells you that they really know and understand the outcome of this mess – no one on earth has ever gone through a global downturn in a global economy like we are experiencing!!


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: