Patterico's Pontifications

4/27/2010

Market Wakes Up; Stocks Down

Filed under: Economics — DRJ @ 5:06 pm



[Guest post by DRJ]

The Dow was down 213 points today as the Senate questioned Goldman Sachs’ executives, Greece and Europe flounders, and the U.S. faces a bleak economic future:

“Fear of a sovereign debt crisis in Europe resurfaced Tuesday, sending stocks tumbling around the globe. In the U.S. the Dow shed 213 points and the S&P lost 28 points. Meanwhile, gold rose to its highest level in 2 weeks, hitting $1165 per ounce at its intraday peak.

In other words, today was a great day for Peter Schiff, president of Euro Pacific Capital.

“A lot of people were confused – they thought the market going up was somehow ratifying what the government had done – that the stimulus and bailouts were good and the economy was improving – it’s not,” Schiff says. “The economy is in worse shape than in 2008.”

Rather than resolved the crisis, all we’ve done is papered over problems in the banking system with “phony accounting” and “dug ourselves deeper into debt,” says Schiff, a longtime deficit hawk.

The crisis of 2008 was merely the “overture” to the “real crisis” Schiff (still) sees coming: “The real crisis is going to be a currency crisis, a funding crisis, a sovereign debt crisis – and that’s when we have to pay the piper,” he says. “We’re in very bad shape. Sovereign credit risk in the U.S. is just as great — if not greater than [in] Greece.”

Some people discount Schiff’s warnings, saying he’s too bearish on the American economy. Those are probably the same people who doubted American corporations when they recently announced ObamaCare will hurt earnings, but we know how that turned out:

“Within days after President Obama signed the law on March 23, companies filed reports with the Securities and Exchange Commission, saying the tax change would have a material adverse effect on their earnings.

The White House suggested that companies were exaggerating the effects of the tax change. The commerce secretary, Gary F. Locke, said the companies were being “premature and irresponsible” in taking such write-downs.

Representative Henry A. Waxman of California and Bart Stupak of Michigan, both Democrats, opened an investigation and demanded that four companies — AT&T, Caterpillar, Deere and Verizon — supply documents analyzing the “impact of health care reform,” together with an explanation of their accounting methods.

The documents — hundreds of pages of e-mail messages and financial worksheets — include large amounts of data that substantiate the companies’ concerns. They have reignited a battle over the law in Congress.”
***
A tabulation by the United States Chamber of Commerce shows that at least 40 companies have taken charges against earnings that total $3.4 billion since the law was signed.

I hate to be negative but I see dark days ahead.

— DRJ

18 Responses to “Market Wakes Up; Stocks Down”

  1. My wife and I were discussing this last night. I suspect that unless Greece has a spectacular meltdown that scares us straight,it will be a very unpleasant decade.

    Dr T (8897e3)

  2. I hate to be negative but I see dark days ahead.

    The recovery begins this upcoming November.

    Blacque Jacques Shellacque (5ef35b)

  3. Keep in mind that last February the Dow had dropped below 10K, and looked to be headed for the dreaded double-dip, until people began floating “rumors” that Greece would be bailed out every time a major negative hit to Greece’s market ocurred. Those “rumors” were enough to goose the stock market above 11K despite several poor economic reports both here and abroad.

    It looks like this stupid little game might have finally run out of steam and the market will start making a correction to more realistic levels, but don’t bet on it just yet. The ramp-up since March of 09 has been based largely on a huge pump of liquidity from Helicopter Ben and endless “stimulus” spending that has pulled forward demand and can’t be sustained over the long run. With the IMF providing bailouts left and right now, that pump hasn’t quite turned off just yet, even though the patient is bleeding out faster than they can put more in.

    Another Chris (35bdd0)

  4. Comment by Blacque Jacques Shellacque — 4/27/2010 @ 6:46 pm

    The way DC works, I think the best we can expect following the Nov election is “the end of the beginning”.
    Only if Congress unwinds many of their unwise previous acts will this be “the beginning of the end”.
    It is very likely, that we are just in the beginning of our own “Lost Decade”.

    AD - RtR/OS! (2ebc1d)

  5. Comment by Another Chris — 4/27/2010 @ 7:01 pm

    S&P’s downgraded both Portugal and Greece, that just leaves Ireland, Italy, and Spain of the PIIGS.
    Will the EU get its’ act together, or will they attempt to shovel this all off onto the World Bank/International Monetary Fund (meaning the United States, which is already broke and appears to be a “dead man walking”)?
    They can take meaningful measures to deal with this absent WB/IMF, but if they don’t, the future looks particularly bleak – the sort of bleak that has resulted in large, international conflagrations historically.

    AD - RtR/OS! (2ebc1d)

  6. Well, there’s always China.

    Ag80 (f67beb)

  7. I think the Chinese are too astute to invest in the PIIGS.

    AD - RtR/OS! (2ebc1d)

  8. Pathetic

    FLBuckeye (fc9713)

  9. Will the EU get its’ act together, or will they attempt to shovel this all off onto the World Bank/International Monetary Fund (meaning the United States, which is already broke and appears to be a “dead man walking”)?

    The IMF is likely the last “extend and pretend” bastion–and as you pointed out, the US is in just as bad a shape as the PIIGS. We’re better at printing money than they are, but even that can’t last forever.

    Can it?

    Another Chris (35bdd0)

  10. By the time Barcky and the Dems quit screwing around with the economy (amnesty, cap and destroy, raise taxes, VAT, etc …) I suspect what remains will be only vaguely familiar. I do not care for these people, at all.

    JD (c1a2b8)

  11. Folks…look at the corporate earnings reports, companies are actually making money this year! The reason the climbout seemed to be overheated is because the market fell way too much initially. So the climbout was really a correction to an over reaction to news reports and the bailouts. Ford Motor is a great example of “staying the course”. The only reason the market should fall again is if companies lose money. Companies will only lose money if no one buys their products (regardless of sector). Greek junk bond status has little to do with Americans buying Ford automobiles…it is only important to those in the financial sectors, holding those bonds. Based on earnings reports and projections, 2010 should be a good year for most companies. Market keeps going down, I’m buying…otherwise I’m holding for now…IMHO…

    GoDad (6ed79d)

  12. instead of a “concern troll” we get the “everything’s wonderful” one instead.

    redc1c4 (fb8750)

  13. The recent stock market rise above 11K has been unexplainable considering Obuma’s agenda.

    krusher (2cfaaa)

  14. Folks…look at the corporate earnings reports, companies are actually making money this year!

    Yeah, because they’ve either 1) lost a number of competitors to bankruptcy, leading to slightly higher y/o/y store sales (see Best Buy); or 2) they’ve cut their expenses to the bone–which has included laying off or reducing the hours of their workers. Only a delusional fool would think that we are even close to an actual recovery.

    Try pulling that happytalk with someone who doesn’t read the financial blogs, pal.

    The recent stock market rise above 11K has been unexplainable considering Obuma’s agenda.

    The banksters know Obama will allow Bernanke to keep the liquidity pump going. For all the bluster coming from Obama and the Democrats right now, they know damn well that they can’t afford a major stock market drop, or else their “we saved the country” narrative goes right out the window. Hence, the window-dressing that is the current financial “reform” bill, which, like the healthcare “reform” bill, doesn’t reform jack squat–it’s merely a means to give people the impression that they’re actually doing something substantive.

    Another Chris (2d8013)

  15. And right on cue, the market does a rocket shot this morning based, once again, on the “rumor” that the bailout will go full speed ahead.

    Another Chris (2d8013)

  16. GoDad, I truly hope you are right. I hope things get better; businesses thrive; contention declines. But I don’t believe that will happen any time soon. Not even after the Nov. elections. The Federal government has been taking the power drug for far too long. They won’t go cold turkey and they don’t think they are the problem. The elections won’t matter because the two parties will continue to only give us poor options to pick from.
    The only good investment is in canned goods (physical, not stock in Delmonte).

    Corwin (ea9428)

  17. Corwin – a much better investment is in a Victory Garden !

    (Well, at least in Southern California)

    Alasdair (205079)

  18. So I suggest reading Corporate Earnings report and now I’m a “happytalk” troll…one down day and all of sudden the market is crashing…I have access to the same information as the “financial blogs” and can make my own decisions based on my research, thank you very much.

    There was nothing on Tuesday to suggest anything other than profit taking (probably pushed by the downgrade of Greek bonds) that was bound to happen sooner or later.

    Most of the above comments spring from emotional response rather than actual market data or trends. Investing is best done based on facts and not emotionally.

    GoDad (6ed79d)


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