Option1307 (30.56)

Doesn't the market have to fall another 20%...?

November 19, 2008 – Comments (3) | RELATED TICKERS: GM , SKF

(Thanks bullshiite, I’ve been thinking about this and you sparked my memory today…)

Honestly, doesn’t it have to crash a lot further?

The last several weeks I’ve noticed a lot of enthusiasm about buying stocks at these fire sale prices. I admit, prices are rather attractive and definitely cheaper than the last 10 yrs or so, not to mention higher dividends (thanks TMFDeej). However, does that mean that now is a good time to resume/continue buying? I don’t think so in my opinion. Here’s why…

1) The Big 3 are hanging by a thread and we are pinching their lifeline. First off, I’m voting to let them fail and restructure. In my humble opinion, this will be devastating, but absolutely necessary in the long run. The sooner we tackle this problem the better. These companies have been run into the ground and are worthless in their current form. Btw, I almost died when I heard the Big 3 testifying in Congress and they said that the management was “fine and not at fault, it was only the bad economy”…This is an absurd statement. Yes, the economy has hurt these companies, but piss poor management is equally, at the very least, at fault as well. These companies do employ several 100,000 people and there are over a few million that are indirectly connected to this industry. Therefore, when the go bankrupt (hopefully) this will crush the market and economy even further.

2) This holiday season will be terrible for sales; therefore, companies’ earnings are going to swan dive off a cliff. Yes, gas prices have plummeted and thus consumers have more money to speed on consuming/gifts/etc. I know this has been a major push by many “analysts” as of late. However I don’t think these analysts realize one important factor. People are scared. Scared of losing their job, scared of losing their house. Pretty much just scared of life in general right now. Even though they have more money in their pocket, in comparison to this past summer, people are going to save it. I believe there will be a temporary increase in American savings rate. This saving is a good thing, but will produce just awful sales this coming holiday season.

3) Unemployment rate will reach double digits by mid-2009. What do I need to say here? Job losses are coming daily, and in massive amounts. CITI announced job cuts of some 50,000+ this week alone. Every industry (besides government which is growing monthly, odd) is being affected and killed by job cuts. This will continue. See Alstry’s post for more indepth details, (thanks for those excellent posts).  We are entering what I like to call so eloquently as the “we are all screwed snowball effect”. It’s simple really. The economy is bad and people are fearful of losing their jobs, so they stop spending. Companies loss revenue and thus lay off workers to cut costs. People lose their jobs and cut spending even more, companies lose more $$, cut more jobs, etc. etc. And all of a sudden this is one massive snowball coming right at you!! We are just starting to see companies report horrible numbers, this will only increase the job cuts. Double digits are coming, its’ only a matter of time.

Ok, if any of these scenarios play out, or all of them, doesn’t the market have to plummet a lot further? Like 10-20-30% People are going to flip if we let the Big three face bankruptcy etc. There is just so much potential for horrid economic news out there right now. I know we have already had a bunch and the market has possibly factored in some bad news, but nothing like a GM bankruptcy or unemployment of 10/12%. I am all for buying stocks on the way down, and I am a long term buyer. However, I just don’t see any justification or logical reason to be buying more stocks right now. Shouldn’t we wait for some of this uncertainty to play out? I would rather be a touch “late” to calling a bottom then arriving right before humpty dumpty gets pushed off the way and breaks his face into a million pieces a.k.a. 20% market drop.

Thoughts? Where am I wrong? I honestly would like to know and if you’re buying, good luck son!

~Option