The stock market still has plenty of downside left even though today there was a dramatic 900 point reversal from the lows. This was largely a technical bounce off of the previous SP 840 low which was breached briefly. The market makers took their net short positions from the lows and started converting them rapidly into long positions. As the market increases, these same market makers will start shorting again and the market decline will resume. This will continue until there is some visibility that the business climate will improve when investors are willing to buy stocks for the longer term.
Today, there was a monster 500K+ new job loses filed in the latest week, and this portends another monster negative employment report for November (reported on the first Friday in December). With job loses of this scale, it is hard to imagine a meaningful bottom in the market any time soon.
The most interesting question is how long will it take the market to improve? Market students will speak of the typical recession scenarios and explain it just won’t be long, like 12 to 18 months. They won’t mention that it took 22 YEARS for the stock market to make new highs after the 1930s depression and there were numerous legs down just trying to stabilize the market initially.
Meanwhile, the easy money days of the last decades are likely over forever — or at least until a US default. The US will try and spend its way out of this crisis but this will likely not work because of the NATIONAL DEBT. The NATIONAL DEBT is going up at an alarming rate. The US government is signing up to back TRILLIONS of dollars in debt for lots of companies. Detroit want a bailout. Hedge funds will be decimated. Massive leverage will be unwound. Life insurance companies will fail because they over promised and it is unlikely they will have enough money to meet their obligations. Baby boomers are getting older and will make more and more demands on the social systems. Universal health care will have to be implemented or watch people die in the streets. And — TRILLIONS of dollars of derivatives will have to be disposed of. It will be very painful.
One ripple, and there could be many, will bring the entire system down which could force the US into bankruptcy. If the US defaults on its debt which is probably inevitable, there are very serious global consequences that involve wars, protectionism, tariffs, and extreme nationalism.
America is doomed.
