Friday, November 7, 2008

As Bad as it Gets

The unemployment numbers were a horror show. The revisions were worse.

The U.S. equity market lost 10% of its value in 2 days, and are down over 40% in the past 12 months.

Oil traded below $60 overnight.

My bet, AT THIS MOMENT, is that the equity market has priced in the worst. My mind could change, and I am not buying anything this morning. I will sell some out of the money puts on certain energy equities, picking up some premium and if put to me my entry price will be much lower than today's price.

Gold has held up very well considering the rates cuts by the Bank of England and the ECB (which helps the $, and Americans price Gold in $'s). I think the argument that we are at risk of inflation in the near term has been settled, but in a world of zero interest paid on cash, Gold loses that disadvantage (Gold does not pay interest - if cash does not either, Gold becomes more appealing all thing being equal).

I think people have to adjust their goals. I sincerely doubt many people now below the age of 55 will actually EVER be able to retire. The numbers of workers will simply be insufficient to support the consumption of retirees if the standard of consumption is presumed to remain the same, and that is before I throw in declining Oil supplie to the U.S. I think that savings will be more for "rainy days" rather than years of Golf playing in Florida while clipping bond coupons. Of course, wealthy folks will still be doing this but their numbers will significantly depleted.


GM, Ford, and Chrysler should be bailed out AFTER a prepackaged bankruptcy. Bailing them out before hand just steals money from people that have no health insurance or pension plan and gives it the UAW retirees.

I might as well shout down a well on this one.


The markets are pricing in a .5 % Fed Funds rate.

It was only 3 months ago the Fed was threatening to RAISE rates. We need to get through this crisis - and then we need to get RID OF THE FED.

This may seem inconsistent with my position that the Paulson plan was necessary; I think not. "There are no idealouges in a crisis". We needed a bridge from here to "there", but we still need to get "there". In the absence of that bridge, we might have had anarchy. That is NOT hyperbole.

Good Luck!

Mentatt (at) yahoo (d0t) com


bureaucrat said...

You just won't say we are in a deflation, will you? :) A comprehensive collapse of demand across the board by a worn-out, overstretched, aging purchasing public. I AM going to retire in 2024 at the age of 56 and 6 months, no matter what. I owe it to my fellow working friends to escape this salt mine and show them that they too can overcome! :) Retirement will not die! It takes underconsumption. If you keep people fed (and more or less housed), you can underconsume and afford a retirement. That's my strategy (that and making a killing on oil). And while the oil prices continue to drop along with everything else, hundreds of cars and trucks still zoom up and down the Kennedy Expressway in Chicago every day at noon, burning lots and lots of oil ...

Greg T. Jeffers said...

We are in deflation.

That said, we won't be in deflation in 2010.

Depends on what ones definition of retirement is. Living with your grown children while caring for the grandchildren and running the kitchen garden is not what most Americans had in mind, but I think that will about describe their "retirement".

Dan said...

I wonder if demographics are the root cause. The have a growing number of retirees relative to workers due to abortion and birth control; the great depression would have had a similar demographic due to the great war, the long depression would have as well due to the civil war. I am not including WWII because firebombing whole cities does not have the same effect on the population.

Dan said...

Doh! That should be “We have a growing number of retirees…”

Dan said...

@ Bureaucrat

Here is you a low dough empty nester house…

bureaucrat said...

I have a 4,800 sq. ft. 3-level with 2 renters. The only financial thing I can count on staying the same is the $2,315 mortgage payment. :)

bureaucrat said...

Just a quick observation: since for some reason we are talking about racism ... how about "anti-racism"? On the Saturday Today show this morning, they were FAWNING over the idea of the Obama family being in the White House, with their new doggie (someday). An all-new Camelot. We are a nation so unconfident of our own status as a middle class economy, we now have to give the "new royalty" lots and lots of air time, just like a reality TV show. They are setting up this poor man for a big fall. Reagan, Clinton and Thatcher were handed great economies because of cheap oil. Obama has no such hope. If he and "we" Democrats are gonna get out of this, it will take a miracle or a glacial redirection of spending priorities. Either way, racism could be set up for a big return. Hunger breeds anger. You watch.

Anonymous said...

I am sick of morons talking about deflation. If there is deflation it is local. Worldwide inflation is running wuite high even fater oil prices have retrenched. Look at russia's figures according IMF they will have 3.5% growth and 8% inflation.

India is expecting inflation to "moderate" to 9%. yep that sounds deflationary to me.
US may have some deflation and It will reverse in due course. Worldwide inflation is running hot and a lot of the commodity price collapse has been offsetted by weakening currencies.

bureaucrat said...

I'm willing to accept that the rest of the world is not deflating presently. Every nation except Japan and Switzerland are inflating themselves into oblivion. But those other nations run the same risk as the U.S. of a protracted slowdown. China is already slowing to 5% from the usual 10% growth. If economic activity decreases, and jobs go away, demand will slow and then we may then notice deflation. For now, though, evidence of a deflation in the U.S. is all around us. GM, Ford and Chrysler are on their knees. The two major food stores in Chicago -- Jewel and Dominicks -- have sales stickers everywhere on the shelves. Energy prices have collapsed. Education and health care remain stubbornly high, however. I'll go that the rest of the world is in an inflationary environment for now.

Dan said...

As long as the worlds reserve currency is contracting nothing else matters. The ones that are inflating like mad are just trying to get out of dollar denominated trades, excepting Zimbabwe; and it will all account for naught.