Economic/Market Highlights 11/5….Biggest Post Election Slump in History!!
Posted by Larry Doyle on November 6, 2008 7:00 AM |
Today’s 5-6% market selloff is the biggest post-election slump in history. If you think the markets aren’t nervous enough already, the prospects of a Democratic Congress and White House added fuel to the fire.
I fully appreciate that the campaign and election captivated our hearts and minds and souls over the last days, weeks, and months. To that end I refrained recently from regular economic/market posts so as not to distract from the main focus. Against that backdrop, though, we all have bills to pay so back to work we go.
Our economy remains mired in a slump that I expect to only get worse over the next few quarters.
–Jamie Dimon, the CEO of JP Morgan cautioned employees in Hong Kong that he does not foresee an economic recovery until 2010. JPM is currently the strongest banking institution in our country and has business in virtually every sector of commercial and investment banking. Dimon is sending a message to not only employees but even moreso to shareholders as to what he expects. We should all heed what he says.
–Dallas Fed governor said that he does not expect to see a positive GDP report until 2010.
Granted both of these individuals are simply sharing their opinions but I take these statements as an indication that we are headed not only into a recession but a deep one.
I could list an endless number of campanies who have given warnings about business prospects or have already announced layoffs but I do not have enough room or time. Let me share that I am still looking for the company that has a positive outlook.
One situation that I do have to highlight is the automotive industry. GM and Chrysler have little choice but to merge but would like government assistance in the process. The Bush administration has effectively said that they are not going to move on this request at this time and will allow the Obama administration to handle. I do not know if the markets or the cash needs at GM will allow that much time to pass. The UAW has already indicated that they do not support a merger given the expected loss of jobs. I may be wrong but either there will be a merger between these companies or a bankruptcy (GM…given cash constraints). I hope that I am wrong but I would expect that there will most likely be upwards of several hundred thousand (if not a million) jobs lost in this situation. The ripple effect with suppliers will add real insult to injury.
Credit has eased somewhat over the last few weeks with 3 month Libor now done in the vicinity of 2.50% from a high of 4.80%. That said, for lending to occur there needs to be real demand as well and right now neither consumers nor institutions are looking to borrow.
The yield curve (difference between short term rates and long term rates) is quite steep and IMO going to get steeper. This steepness portends a protracted slowing in the economy along with concern for longer term inflation. Not good on either front.
I do expect that we will continue to see consolidation in the banking industry, a likely lowering of rates by the Fed in December once again, and an unemployment rate headed to at least 8%-9% if not even higher.
I further expect the market to move between 7500-9500 and look for direction from the new administration. I am just going to go out on a limb and say that BO will initially look to pass a significant stimulus package while delaying an increase in tax rates. Read more on this front.
All this said, all of the governmental supports already implemented and those that surely will be enacted are propping an economy that is in serious distress.
I do think that both equities and bonds are going to get cheaper from current levels and that short term CDs or short term high quality municipal bonds are a good place to park cash.
For a hint of what municipalities are facing, here is a piece on the trouble facing NYC. Mayor Bloomberg is talking about an increase in the income tax rate and significant cut in services.
Your greatest investment is personal expense management and long term career growth. I hope that everybody reading this has an opportunity to work on both of those compenents to their portfolio.
To that end I share with you the following article in today’s WSJ:
All the best.