Archive for October, 2008
Down the Homestretch in the National Election
Posted by admin | Filed under election
The United States will elect a new president this coming Tuesday. Polls show Obama ahead by a margin of between 3 and 10 points, depending on which one you give credence to. Here is a link to the website Pollster.com showing their prediction of the election:
Here’s another:
http://www.realclearpolitics.com/epolls/maps/obama_vs_mccain/
Both polls show Obama comfortably ahead. Of course, polls have been known to be wrong, but this election does not look that close according to the experts. In case you are still undecided, here is a link from CNN Money which describes how each candidate stands on the economic issues effecting our country:
http://money.cnn.com/galleries/2008/news/0806/gallery.election_issues/
One thing that is certain is that the new president will be forced to deal with several economic issues which have not been seen in quite some time. Lets hope that whoever wins, they or their advisors will have the foresight to be able to make a positive change for all Americans.
The Fed Cuts the Rate to 1%; Stock Market Yawns
Posted by admin | Filed under crisis
The Federal Open Market Committee today cut the fed funds rate by 50 basis points to 1 per cent today. As we discussed earlier, there seems to be very little correlation in trading from one day to the next. Here is part of the statement from the FOMC:
“The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”
If you focus on the last sentence, you will see that the Fed actually thinks the credit situation will get worse going forward! This is not exactly awe inspiring for the financial markets going forward.
In other news, the NY Post is reporting that New York is starting to feel the pain:
NY Post: New York Gov. David Paterson said Tuesday that the recession, overspending by the state and Wall Street’s meltdown will result in a record $47 billion deficit over the next four years.
He says the current budget’s shortfall is $1.5 billion and the next fiscal year beginning April 1 will include a $12.5 billion deficit. A month ago, the current deficit was estimated at $1.2 billion.
“New York is at the epicenter of an extraordinary financial crisis on Wall Street,” Paterson said in releasing the state’s mid-year financial reports during a New York City news conference. “We will have no choice but to take bold and aggressive action to reduce state spending.”
Finally, here is an article from the NY Times regarding the across the board layoffs throughout corporate America: Link
So where does this all end? How low can we go? While no one can be really sure, I believe that the going forward earnings on the S&P 500 could be around $60. If you put a price earnings multiple of 12 on that, you come up with a target of 720. However, in a severe recession, this multiple could easily be at 10, or even less. Just to put things in prospective, General Motors was the largest company in the US during the 1930’s. The stock actually got as low as five times earnings (with a dividend yield of 11%). Although I’m not saying we will get there, a P/E multiple of 10 on S&P earnings of 60 would give you a level of 600. The index closed at 930 today.
The Wild Market Moves Continue
Posted by admin | Filed under crisis
As has been happening for the past 2 months, the market continues to trade wildly, thus continuing to reinforce my opinion that long term trading doesn’t make any financial sense anymore. Therefore, if you are going to invest funds in anything today, one must either keep a close watch on your portfolio, or rely on someone you trust to do it for you. There has never been any time in US financial history where the market has had moves of several percentage points per day. Thus, attempting to simply “buy and hold” seems to me to be a rather risky strategy.
Yesterday, the market was up over 10%. What this means to today’s action is probably zero. So far every major rally has had no follow through at all the next day. We could be up or down several hundred points. In fact, even looking at the market at midday is not really a good indication. Most of the market’s volatility seems to come in the last hour of trading.
It looks like Obama is going to win the Presidential election next week. While no one can be quite sure what his economic policies will be, I don’t think either he or McCain really has a firm grasp on the world financial situation. Why do I say this? Because each candidate speaks of all these wonderful programs they are going to implement if elected. We are now facing, by far, the biggest deficit in history. How exactly are they going to pay for these programs? Raise taxes in an economy where people are already suffering? Many Americans are suffering through job losses, housing prices (home foreclosures are now at record levels) and the severe declines in their personal and pension accounts. I believe that we are probably going into a very difficult economic climate going forward. I will speak more about this later today.
