Economic Crisis Worsens as Consumer Confidence Hits Record Low
Stock-Markets / Recession 2008 - 2010 Oct 18, 2008 - 07:35 AM GMT
Confidence among Americans fell by the most on record and single-family housing starts hit a 26- year low, posing an increasing threat to consumer spending that accounts for more than two-thirds of the economy.
The credit crunch has taken more wind out of the sails of the real estate market and may be the primary cause of the deepest decline in consumer spending since 1991. Homebuilders were already experiencing difficulties luring buyers into new homes before the steep decline in the stock market made prospective buyers twice shy. The slump in housing appeared to be bottoming when the financial markets imploded, pulling the rug out from under plans by builders of reducing inventory. The trouble is, builders were very late in recognizing the magnitude of the change and continued to add inventory in the face of slumping sales. Even pricey Manhattan properties are coming down.
It seems that shoppers are still looking for discounts and some are even being aggressive about negotiating lower prices with store owners. This is a far cry from a year ago when shoppers were still setting record sales volume.
Will banks start lending to each other?
The money markets are starting to thaw. It took about $2 trillion of taxpayer money and loan guarantees along with stimuli from all the world's central banks to unfreeze the markets. It is thought that t he gradual but persistent decline in the London interbank offered rate, or Libor, for short-term loans indicates banks will soon resume making routine loans to each other, economists said, likely averting a disastrous implosion of the financial system, according to the experts. I don't agree.
Don't let this rally fool you.
U.S. stocks rallied, extending the market's best weekly gain since 1982 , as Warren Buffett's advice to buy shares and Google Inc.'s earnings offset a report showing the housing slump worsened.
Last week was the worst weekly loss. This week was the best weekly gain. What is the market up to? Advisors are still trying to keep their clients in the market, while more and more want out. The clients may be right. Check out our videos on YouTube
Bonds are declining too. What's up?
They call it “ Armageddon ” in the bond market. Credit markets have fallen so far that they are providing a ``once in a lifetime opportunity,'' and investors are still selling. What gives? While central banks injected $3 trillion into the global economy, credit markets are tumbling because banks are clamping down on lending, forcing investors to unload assets they bought with borrowed money. The Federal Reserve said Aug. 11 that its quarterly survey shows most ``domestic institutions reported having tightened their lending standards and terms.'' The amount of margin in the New York Stock exchange is said to be nearly $290 billion, still higher than the peak in margin loans in early 2000.
Gold tanks!
Gold headed for the biggest weekly loss in two months in London as global equity markets rose and crude-oil prices declined, reducing demand for the metal as a haven and an inflation hedge. Advisors still see gold as a store of value against the massive surge of money being created to stave off bank failures. The problem, however, is highlighted in the prior article. In an effort to deleverage, hedge funds must sell what they can, not what they want.
The Japanese market is in the same predicament we are.
Japanese stocks rebounded from their worst plunge in two decades as the deepening financial crisis prompted investors to buy companies whose earnings are insulated from a slowdown in overseas markets. Yesterday, the Nikkei sank 11.4 percent, the biggest slump since October 1987 and its second-sharpest drop ever, after a record 14 percent gain just two days earlier.
Still no bottom in sight for Chinese stocks.
Shanghai Composite Index , down 69 percent from its record high a year ago, is poised to rally (???) even as the deepening financial crisis hammers equities worldwide, the country's largest brokerage by assets predicts. Unfortunately, Major brokerages are only on the buy side of the market. They will never tell you when to sell. This kind of pronouncement is meant to keep the sheep in line to be sheared. They will not be told when the bottom is in.
The dollar is due for a brief correction...
…as the dollar fell , heading for its first weekly decline against the euro this month, before U.S. consumer and housing reports that may add to evidence the global credit squeeze is pushing the economy toward a recession. The Employment Situation for September did not build confidence for the Dollar, either. The problem is, the other major economies are in worse shape than we are. Don't expect the decline to last.
Home prices far from a bottom…
… The American housing market , where the global economic crisis began, is far from hitting bottom. Home prices across much of the country are likely to fall through late 2009, economists say, and in some markets the trend could last even longer depending on the severity of the anticipated recession. In the meantime, the housing industry is calling for yet another bailout . When will Congress learn to say, “No!”
Refiners still unable to fill the pipelines.
The Energy Information Administration reports that, “The U.S. average price for regular gasoline plummeted by 33.3 cents to hit 315.1 cents per gallon. The price was the lowest since February 25 of this year though still 38.9 cents above the price at the same time last year. Prices were sharply lower in all regions of the country. The national average price has now fallen for four weeks in a row, with a cumulative drop of more than 68 cents per gallon.” It's about time!
Energy prices going lower.
The Energy Information Agency's Natural Gas Weekly Update tells. “ Since Wednesday, October 8, natural gas prices exhibited considerable resilience despite falling crude oil prices and the general softening of the economy. Factors contributing to the relative strength of natural gas prices likely include the imminent advent of the 2008-2009 heating season, a cooling trend in some parts of the Lower 48 States, and continuing production shut-ins.”
Lending at bazooka point.
Mish has come up with another look at the latest attempt by the Treasury Department to get banks to lend money. Did you say a bazooka? Well, not quite. You will need to read the article to finds out what the latest strong arm tactic is being used to get banks to lend. Hey, isn't that what got us into trouble in the first place?
We're on the air every Friday.
Tim Wood, John Grant and I are back in our weekly session on the markets. The market has been a real roller coaster ride this week. You will be able to access the interview by clicking here .
New IPTV program going strong.
This week's show on www.yorba.tv is packed with information about the direction of the markets. I'm on every Tuesday at 4:00 pm EDT . You can find the archives of my latest programs by clicking here .
Please make an appointment to discuss our investment strategies by calling Claire or Tony at (517) 699-1554, ext 10 or 11. Or e-mail us at tpi@thepracticalinvestor.com .
Anthony M. Cherniawski,
President and CIO
http://www.thepracticalinvestor.com
As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals
Disclaimer: The content in this article is written for educational and informational purposes only. There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.
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