How To Monitor The Market In The Recession Of 2009
As 2009 arrived, the second year of the recession, everyone should be careful how the situation change in order to protect yourself whether you play stock market or not. For doing that, you have to properly monitor the market. A lot of uncertainties laid ahead, I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. But you can do the best to reduce your loss (or make money if your lucky) in situation like this.
“A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.”
What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
Recession/depression create opportunity.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
This could also happen in this recession. Investors still could profit from this depressing economy.
Since Dow lost nearly 40% in year of 2008, 2009 could be a brighter year for you (it could be worse). In the past 80 years, 60 out of 80 started with higher in stock market ended up with higher. Whether you want to make money or protect yourself from massive lose in the market this year, you may have to monitor the trends:
Monitor the trends
-Unemployment
Initial jobless claims surged by 58,000, to 573,000 in the week ending Dec. 6, the highest level since 1982 (not controlling for population growth). A roundup of reactions by economists and analysts is below.
John E. Silvia, Wachovia Corporation: “Continuing claims suggest duration of unemployment for workers becomes longer — and probably more difficult.”
(To be counted as unemployed, the Bureau of Labor Statistics requires that someone: 1) was without a job in the reference week; 2) made an effort to actively search for a job in the last four weeks; and 3) was available for work. A person who is not employed and does not meet this definition of unemployed is considered out of the labor force.)
-Number of factory/store closing
Stores that informed the Security Exchange of closing plans between October 2008 and January 2009.
-People cutting back
The Conference Board’s consumer confidence index fell to an all-time low of 38 in December, down from 44.7 in November and 38.8 in October.
Brian Bethune, chief United States financial economist, IHS Global Insight: These adverse conditions in the employment market were reflected in a steep drop in confidence about the present situation.
However, consumer expectations edged down only slightly, and buying plans for major consumer durables actually improved slightly, possibly reflecting the steep price discounts that have been made available by retailers.
-Falling business
Brokerage, automakers, financial, consumer firms are considered as falling business, year of 2009 will be tough for them to go through. More bad implications spread around as more firms are filing chapter 11 bankruptcy protection. (e.g Lehman)
US Major Bankrupt Companies 2008- The Latest Casualty Count
Monitor the bubbles
-Credit bubble
The biggest asset and credit bubble in human history is now going bust, with overall credit losses likely to be close to a staggering $2 trillion. Thus, unless governments rapidly recapitalize financial institutions, the credit crunch will become even more severe as losses mount faster than recapitalization and banks are forced to contract credit and lending.
Equity prices and other risky assets have fallen sharply from their peaks of late 2007, but there are still significant downside risks. An emerging consensus suggests that the prices of many risky assets - including equities - have fallen so much that we are at the bottom and a rapid recovery will occur.
But the worst is still ahead of us. In the next few months, the macroeconomic news and earnings/profits reports from around the world will be much worse than expected, putting further downward pressure on prices of risky assets, because equity analysts are still deluding themselves that the economic contraction will be mild and short.
-The continuous undoing of a real-estate bubble
Today’s global crisis was triggered by the collapse of the US housing bubble, but it was not caused by it. America’s credit excesses were in residential mortgages, commercial mortgages, credit cards, auto loans, and student loans. There was also excess in the securitized products that converted these debts into toxic financial derivatives; in borrowing by local governments; in financing for leveraged buyouts that should never have occurred; in corporate bonds that will now suffer massive losses in a surge of defaults; in the dangerous and unregulated credit default swap market. Although it is not the cause but we still need to monitor it to see if the condition is improved or worsen because the improving real estate market is the result of stabilize credit market.
-a forced unwinding of hedge of position
While the risk of a total systemic financial meltdown has been reduced by the actions of the G-7 and other economies to backstop their financial systems, severe vulnerabilities remain. The credit crunch will get worse; deleveraging will continue, as hedge funds and other leveraged players are forced to sell assets into illiquid and distressed markets, thus causing more price falls and driving more insolvent financial institutions out of business. A few emerging-market economies will certainly enter a full-blown financial crisis.
Monitor the debts/loans
-Government debt, interest payment, bailout funds
The real problem we face is too much debt paying an ever growing mountain of compound interest. This is unsustainable and of course will collapse as insolvency out paces new debt writing.
But that’s not how the gummit and banksters see things. The government wants to inflate a collapsing money supply, and as 95% of all money in circulation exists in the form of private bank debt, the only way to do this is to get hopelessly broke citizens borrowing again. The banksters just want to save themselves and pass on their losses (which are in the tens of trillions) to the taxpayer. Fed bailing out the banks this way is not health and will only makes the situation worse. Moreover, It is challenging for government officials to understand how financial institutions participating in a $700 billion bank bailout program are using the capital they receive.
Recent news about bailout funds: Treasury exceeds limit of financial rescue funds
Again, the Government will ask for more of your money because it failed. Failure is the charter & mission statement of our Government. Without you, it will never be able to reach “Despotism” status.
(Despotism is a form of government by a single authority, either an individual or tightly knit group, which rules with absolute political power. In its classical form, a despotism is a state where a single individual, the Despot, wields all the power and authority embodying the state and everyone else is a subsidiary person. This form of despotism was common in the first forms of statehood and civilization; the Pharaoh of Egypt is exemplary of the classical Despot.)
Pay attention to the good predictors
“recovery advocates”
This recession (depression) is just beginning. This is not your usual recession that can be cornered by more debt. No quick fix this time, no speedy recovery (unless you really think that Benrnake can replace the 7 trillion USD already erased from the system - CANNOT!), so if you have held onto your bullish portfolio and prayed every night that one day it will have gained back the 30-40% it has lost so far, then pray no more you fool! Sell it against the next rally and start trading (not holding). I remember about 5-7 names that predicted this mess - Roubini, Schiff, Rogers, Faber and a couple more. Where was the rest? The “recovery advocates”? They didn’t see it coming, they couldn’t even envision the scale when it was already in motion and they want to lecture us on when it gets better?
Nouriel Roubini, is a professor of economics at the Stern School of Business, New York University, and chairman of RGE Monitor, an economic consultancy for financial analysis. He has been nicknamed “Dr. Doom” because his economic predictions have been noticeably more pessimistic than most economists.
Peter D. Schiff, is the president of Euro Pacific Capital Inc., a brokerage firm based in Darien, Connecticut. Schiff is an Austrian school economist and supporter of the Ludwig von Mises Institute. Schiff frequently appears as a guest on CNBC, Fox News, CNN, CNN International, and Bloomberg Television and is quoted in major financial publications.
Jim Rogers, is an American investor and financial commentator. He is co-founder, along with George Soros, of the Quantum Fund, and is a college professor, author, world traveler, economic commentator, and creator of the Rogers International Commodities Index (RICI).
Marc Faber, is an investment analyst and entrepreneur born in Zürich, Switzerland.
etc.
Always follow the ones who predicted the mess instead the bashers or pumpers type predictors.
Monitor financial sector
Financial stocks turned in the worst performance, with a loss of nearly 60% Any innovation in this field will be a possible sight of recovery for the economy.
Monitor bailout effects/results
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-How the Failed Bail Out Bill Will Effect You
Monitor inflation/deflation/stagflation trends
In the advanced economies, recession had brought back earlier in 2008 fears of 1970’s-style stagflation (a combination of economic stagnation and inflation). But, with aggregate demand falling below growing aggregate supply, slack goods markets will lead to lower inflation as firms’ pricing power is restrained. Likewise, rising unemployment will control labor costs and wage growth. These factors, combined with sharply falling commodity prices, will cause inflation in advanced economies to ease toward the 1% level, raising concerns about deflation, not stagflation.
Deflation is dangerous as it leads to a liquidity trap: nominal policy rates cannot fall below zero, so monetary policy becomes ineffective. Falling prices mean that the real cost of capital is high and the real value of nominal debts rise, leading to further declines in consumption and investment - and thus setting in motion a vicious circle in which incomes and jobs are squeezed further, aggravating the fall in demand and prices.
As traditional monetary policy becomes ineffective, other unorthodox policies will continue to be used: policies to bail out investors, financial institutions, and borrowers; massive provision of liquidity to banks in order to ease the credit crunch; and even more radical actions to reduce long-term interest rates on government bonds and narrow the spread between market rates and government bonds.
This is the Truth-The Bankers created the S&L crisis and eliminated the competition and They created the Sub-prime crisis (The Banks create the product not the Loan-Brokers) and will eliminate the Loan Brokers.And have already procured the Treasury-and Federal Reserves’ approval and the Supreme court confirmation to go into Real Estate and as The now deceased “George Thatcher” ( Thatcher who started Sterling S&L and build it into Union bank and sold it to Barclays -Who sold it to a Japanese Financial concern) told me - The Bankers tried this in the depression…
Monitor Economic policy changes
Peter Schiff destroys US economic policy
-In the final quarter of 2008, the financial crisis saw the G-20 group of major economies assume a new significance as a locus of economic and financial crisis management.
Economic stimulus plans were announced or under discussion in China, the United States, and the European Union.[19] Bailouts of failing or threatened businesses were carried out or discussed in the USA, the EU, and India.
Monitor the sights of depression (from 1929)
U.S 1929 Great Depression vs. 2008 financial, housing, credit crisis
Great Depression happened in 1929. It took over 10 years to cure.
Effects of depression:
13 million people became unemployed.
Industrial production fell by nearly 45% between the years 1929 and 1932.
Home-building dropped by 80% between the years 1929 and 1932.
From the years 1929 to 1932, about 5000 banks went out of business.
Possibly Related Posts:
- Pearl River Delta repositioned as China’s “reform test field”
- The number that scares me the most is the number we can’t get.
- “Lyin’ Bankers, Meet Mathematics” By Karl Denninger
- “Buying a house is an investment, and I can make money”
- Citing quarterly real housing prices (adjusted for inflation 1975-2008) here:
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