The market closed down another 500 points yesterday, making it down just over 2200 points since this sell off began. I wish I could say that we have hit bottom, but frankly I think we got some to go on the down side . The reason is simple, this is not a market event, this is a response to the lack of economic activity in the country and also the world. Investors and markets have finally decided things are not getting better and the Federal Reserve Tuesday reinforced that knowledge with their unusual action of stating interest are staying put for TWO years going forward. Market pros are still in the market and that means we have not seen the final selling know as capitulation. I would not even dare to call the bottom here, but it would not surprise me to see another 1000 points or more. I know that is not what people want to hear, but this is what you get from capital being completely on strike. The congressional legislation that gave us Dodd-Frank financial regulation and the health care bill passed two years ago is just two of several legislative actions that have caused the small business person to lay low, quit investing and hiring in their business. Add in the constant demonizing of business and most of these entrepreneurs do not want to take risks with their capital, they certainly do not want to be pointed out as making money. Much of these problems we face are choice not fate and can be changed at the ballot box if their is will to do so.
A couple other economic trends worth noting here is what is known as the peak spending year rule. People spend more on consumer items at the age of 49 that any other year in their life on average. The baby boom generation and their large cohort there are now fully past that age and demand has subsided from their spending binge. Add in that most of them has also hit credit card limits as well and you get a general easing of consumer demand. Another generational fact is starting to move into the peak consumer spending ages of 30 to 49 years and that is Generation X which trend to be quite complacent and ill trained as a group. Males in this generation more so than females. With this trend you get lower spending due to lower salaries and the lack of engagement in society makes for less involvement in civic activities. This final trend makes way for the generation behind it to take over as leaders and decision makers sooner than normal. Unfortunately the next generation, known as The Millennials are not old enough to take up the slack in consumer spending yet.
Add to that the death throes of socialism in Europe where the money to finance the large social safety net has run out. People who no longer work and no longer worry about their access to anything since governments supply everything finally know their party if over and do not like it. I had mentioned to you the chain of countries to go down. Greece, Ireland, Spain, Portugal, and Italy. All those have either defaulted or had austerity measures forced upon them. England, which is experiencing huge riots over austerity measures there also made changes. France, as I had said was soon up, looks to be just that as rumors are rampant today that they French banks are in trouble. Makes you wonder why sane people in the US would want to follow this path, but follow it we have.
In any case stocks are still on the way down. US treasuries and bank CD's are paying nothing. These items are not safe as your money does even keep up with inflation with them. The safe places in my opinion are very blue chip dividend stocks where you can be relatively sure of your payout and even if the stock price goes down more you can live off the dividend. One bright spot here is that insiders at these large cap stocks are now buying. They are saying our business is not going anywhere and they believe there is value here. For about the tenth time you can find good pay outs and safety in agency Reits, backed by the real estate and guarantee of the US government. Why would anybody own US treasuries, when they get the same protection and much higher payout in agency Reits? Lastly, I will also reiterate my belief that many US states are safe to lend too, safer than the US government, and payout more yield and tax free too.
Fear is rampant and until that subsides the market is biased to the down side.
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