Well now that we hit our magical 10k number (again) and the big market makers had a chance to take some profits, some wonder if we’re on the verge of a bear market, and others (like last time we hit 10k) think we’re on our way to 14k… Whether you are optimistic or not about the market, the next few weeks will be telling (probably a good time to take some profits if you’re in the market and wait)
We are starting to see the tails of housing not making the comeback we all were anticipating and consumer confidence eroding (now at the lowest point it’s been in 26yrs). This consumer confidence problem is a big deal, especially when combined with continued declines or stagnation in the job market. The consumer confidence is an attempt to measure what consumers think about the future outlook of their livelihoods. This means that if the general populous thinks the future is dim, they will react accordingly. In other words letting money out of their site will be a difficult thing to do.
Some argue, that keeping the money in savings is ok, considering banks have more in their coughers to lend out to big and small businesses alike. The problem with that theory (in relation to the current situation) is that consumer confidence in banks is eroding and banks are continuing to add more barriers to credit. The financial sector in general is struggling to make ends meet and the list of bank failures growing monthly. Banks need to find ways to make ends meet, the obvious source is the consumer. This is an odd problem all on it’s own though – Banks are taking more of the consumer funds to cover the taxes they borrowed in the first place – yes, we gave banks money through the government, so to pay us back, they are taking more of our money through assessing larger fees for using their services. This results in a lot of money poured down the drain on overhead (on both the government and financial organization sides), it also results in a deadweight loss as consumers choose to not partake in the new banking environment and keep their money out of the system.
So what does all this point to? Additional declines in the economy? A jobless recovery? The recession being over?
Well, I don’t think anyone can safely predict where things are going. There will always be controversy in the actions taken so far and what the correct actions should have been or are to fix the remaining problems. All I can say is that whether you’ve lost your job or 40% of your bank savings or not – Be cautious that the worst is not over and make the right decisions along the way. My favorite picture is of the 1932 timeframe of the stock market, after what looked like the worse decline ever…
There was a great recovery – see it there? Right at the end of 1929 – just before the rest of the fall halfway through 1930?
Worse can happen – plan accordingly
UPDATE – A few more posts related to the topic today – Mish has a great review of David Waggoner’s technical chart of the current correction. Economicpicdata has a great graphic of current the thoughts of the public.