Wednesday, October 15, 2008


After the 11% pop on Monday, the DOW is down 550 today ** on top of the 75 it was down yesterday. As I said on Tuesday, this "crisis" does not get solved overnight because the government throws around some money at banks. The bubble took years to create and it will take years, if not decades to fully unwind.

The auto industry is in for one hell of a long recession. All those people buying $50K cars using HELOC money from their bubble priced homes are done. They are not going to buy another car for years. Whoever is buying a car these days is no longer buying the highly profitable SUVs anymore. Without those sales Ford and GM are finished.

All those real estate jobs are gone for a few years as well. The mortgage brokers, the real estate agents, the title company clerks, the escrow companies...all of these people that made very good money buying via buying and selling homes are not going to make a dime for years to come. Same with construction workers.

And all these people won't be eating out, going on vacations or buying new TVs from Best Buy.
The federal govt can spend all the money it wants propping up banks, it won't do a damn thing to bring all that income back.

And that is why stock values will not be shooting up any time soon. The DOW could be at 7000 easily by the end of the year. Maybe even 6000. Or maybe this is some kind of bottom around 9000. Who knows? One thing I do know is, it sure as hell won't be at 11,000 as some people were thinking on Monday.

So as I said yesterday, I will say again today. Buying stocks right now is gambling. Nothing more, nothing less. Wait until it stabilizes, be it at 6000 or 9000. Wait for a month or two of stability. That is a month or two without wild gyrations. Then, and only then start nibbling. If you really do want to gamble, might as well hit the 21 tables, it's more fun and your odds are better.

** Update, it's down 733 and also down the most in % terms since 1987. This means only one thing, Paulson will demand another $700B. Can't possibly have the CEO of Goldman Sachs miss out on his $100M bonus now can we?

No comments: