This post also appears in Forbes.com………CEOnetwork (R)
Here we are in August of 2009, if you went by what is being said in TV and elsewhere, you would think there was never a 2008. Airwaves crackle with the pops , and pings of the stock market hitting record highs!…..Yes….I said record highs..( but I mean you can only account for this year )..Last week the stock market had its best performing month in over 2 decades…( The source were commentators on both CNBC and Bloomberg, and a few others.) Statistically all were true, but do you really believe the worst is behind us? I personally think not, and here’s why……..
The rise in the stock market is dramatic because of the sheer size of the near collapse it undertook just a brief 12 to 18 months ago. Both the S&P, and Dow were racing to new highs…BUT..not anywhere near this rate, and that was when if you didn’t have a job, didn’t have any savings, and a few other so called trifle things, guess what? You could buy a New Home, a New Car, and probably one or two credit cards with 10K spending limits. ( 10K at first, but after you made your first minimum payment, you might get raised to 20K but I digress.) Some commentators on the financial talk shows have now declared ” We have entered a New Bull Market!”. I heard one state… “Dow 15000 here we come!” and on, and on. So now you’re asking, but didn’t I see on the cover of a national magazine that they declared the recession over?….Yes you did!…and that’s why I feel the worst is yet to come.
If you really pay attention to all this so called great news, all you have to understand are the terms, Not as Bad…Is the New …..Beating the Street. Here’s an example to illustrate my point. If you were broke, but I said the computer you were reading this column on right now was worth 5 times more than what you paid for it originally, are you Richer Now? What if I said it’s worth 10 times, a 100 times, a thousand times, what then? Most would say, of course!….Sorry, not so fast. It’s worth that value as an accounting option, or change in a loop hole. You can’t go out and sell it for that, of course No One would pay that, but as a Tax Loop hole go right ahead. Of course that is, if you have made any profits to declare it against, if you don’t have any profits, well it’s all just a fools errand. But right now, this is exactly how most banks, and other entities are so called…Beating Wall Street Analyst’s Expectations!…you know, the same people who never saw the great debacle that was unfolding in their so called area of expertise.
The velocity of the most recent rise of the stock market is from managers, and large portfolio funds who must put money to work in the market at certain levels. For many, their bylaws state they Can Not remain in Cash positions for extended periods of time. They MUST be in the market. This means for many, holding their nose and buying on speculation, or as others would say…Pure Hope!…..But expectations will have to be met, or there will be a very, very dear price to be paid.
Unemployment is currently at 9.5% and most are calling for it to go higher in the very near future. Some are calling for much higher. The so called saving legislation that every politician wants to proclaim has saved us, is showing month after month, that less than 12 to 15 percent of it has even been put to work. ( That includes mortgage refi’s, and other programs also.) The Fed is holding together the financial system the best it can at the present time with the equivalent of Duct Tape. It has to keep interest rates at ZERO regardless of what it can cause in the future, because right now….No Ones Lending!…Think I’m wrong?….Try getting a loan for operating expenses from a bank?…I don’t think so….Also…If you already have a revolving line of credit..you’re doing everything in your power with the exception of cutting your bankers grass yourself to keep it open, or not being reduced. ( Some people might even cut the grass if it meant they could get the loan!)
Don’t get me wrong, I’m not a doom and gloomer. Far from it, I’m an optimist. However, optimists that can take advantage of staying in business by not falling into the traps that the competition seems to be falling all over itself to embrace, just might be the cure for the financial blues that I feel are sure to come. If it’s inevitably going to rain on someones parade…..I want an umbrella in case it rains purple.