Most people know that oil is way up in price and is hurting the world's economies. In the U.S., the housing collapse is killing the credit industry and causing consumer confidence to fall to its lowest levels in decades. Since a high of nearly 14,200 on the DOW Jones Industrial Average in October 2007, our stock markets have been steadily going down. As of this morning, a milestone of being down more than 20 percent at 11,233 was finally realized.
This 20 percent fall is the classic definition of a "Bear" market. As a point of reference, we have been in one of the longest running "Bull" markets; one that started in 1983 and had a brief interruption during the "crash" of 1987. So, being in a "Bear" market is a big thing. Our stock markets are telling us what most of us already sense and feel. The markets are saying that "tough times" are ahead. The markets are falling because there is no light, in terms of corporate earnings growth, in the future of this current American economy. And, believe me, the increasing belief that Barack Obama will win the presidential contest, isn't having any effect on the market's steady fall. If anything, the markets are probably concerned over an Obama Administration.
The key issue will be when this "bear" finds its bottom. The market technicians will be looking for a point when money starts coming back into the stock market and trading volumes start to rise. For weeks there just hasn't been any movement to buy stocks. Trading volumes have been extremely light. The investment community has been keeping their powder dry by keeping money in cash or in non-stock investments like bonds or commodities.
While we haven't yet hit the point of two consecutive quarters of contracted growth and, in doing so, fit the classic definition of a recession, the stock market is now saying the odds are very high for that inevitability. My guess is the last quarter of this year will be the first of two contracted quarters. Following another fall in the first quarter of 2009, we will probably be in the midst of a truly defined recession as of May 2009. My concern will be all the proposed tax increases and big government programs that Obama has planned. If he proceeds in the face of a full-blown recession, we could have one that is extremely deep and long in duration. Just my opinion!
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