The markets have been rallying of late, keeping the Dow about 1,000 points above its lows for the year. Oil has retreated to the mid 40′s and the government continues to hand out billions like its cotton candy. World markets for the time being appear to more tamed, but we have seen this play out before.
I believe that the worst of the recession is now upon us. Consumers and businesses will really curb their spending as the new year approaches. Corporations have been laying off thousands each and every day. With more and more jobs being folded from the job force more and more people will be unable to pay their mortgage bills, credit card tabs and everything else that most of us pay. Banks will have to take additional write downs due to more people not being able to pay their dues. Most of the major banks in the US still have tens of billions of assets on their books that have to re-evaluated leading yet to more losses as the quarter comes to a close. It is my view that each one of the major banking institutions will need more equity from the world’s biggest Sovereign Wealth Fund- The United States Treasury.
I do not see a turnaround in the banks open hand from the government until well after 2010 is upon us. There are some firms that I think will have to be merged or shut down completely (Goldman, Morgan Stanley, Fifth Third, etc). The unsettling part of this is that many of the smartest people on the street and in the policy making roles do not know what to expect next which could lead to yet new lows in the stock market.
What needs to happen in my opinion is a orchestrated attempt to halt the decline in the house sector. Mortgages need to be re-worked on a bigger scale than they are right now. Home values must stabilize and new buyers must come in the market while those that can’t afford get put into lower value homes or rentals. We will get a new stimulus plan by our incoming President which will be dandy but the housing issue must be dealt with full bore.
Until then we will have bear market rallies and potentially lower lows on the major market indexes. We will collectively as a global enterprise stare into the emptiness void that is a dark, bleak black hole.
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