Friday, August 12, 2011

Thursday Tea Party


Last Thursday we saw the Dow lose 512 points. Friday it rebounded a mere 60 points, and Monday after the S&P downgrade we tumbled another 630 points. Tuesday it was then up 420 points in a rebound, before Wednesday's action took the DJIA back down another 510 points in seesaw trading action. It's only fitting that Thursday brought another huge bounceback, this time up 420 points once again, as investors prove that, more than anything else right now, they simply do not know what stocks are worth today. That's what makes this such a scary, and yet exciting, time to be investing right now. Usually -- during well more than 95% of the trading days out there for sure over time -- investors generally feel comfortable that where the market closed yesterday was a fair valuation of the stocks of the companies involved. That's not to say that everyone who ever bought a share of stock in any company has automatically done some calculation in their head to get an idea of what the company is intrinsically worth or anything, far from it. But as a general statement, stocks the next day might go up a little or down a little depending on the business news of the day, but in general there's not going to be a big revaluation of the whole thing on a daily basis.

That's what is missing right now. With all the uncertainty out there right now as I have chronicled over the past week here on the blog, investors truly don't have confidence that they really know what the market is worth. Like, the whole thing. It's one thing for an individual stock to trade up 5% one day and down 5% the next based on some company-specific news or updates. But for the entire market to move 5% at a time, five out of six days in a row, and in both directions, it is literally unprecedented in the history of the Dow and it gets at what I was describing yesterday as the "historic" magnitude of the past week's moves. It's just plain historic. And it indicates that, much like the FOMC itself, investors are very concerned right now, and know very little about what is going to drive growth in the U.S. economy for what is increasingly becoming a more and more extended period of time into the future.

So don't let the big rallies on Tuesday or Thursday of this week fool you. The bears aren't gone, they just know how to pick their spots based on the news and the circumstances of the day. Give them a rumor of a major bank failure in France, and they'll come out of the woodwork. Throw 'em a really bad monthly jobs report with the unemployment rate jumping a couple percentage points, and the bears'll be there, you can count on it. Any serious talk about another recession, and the bandwagoners will jump ship like the sheep that they always, always are when it comes to their money.

And recession is clearly one of the hot topics among the financial talking heads over the past month or so -- specifically, whether or not we're going into a "double-dip" recession, following up on the recession of 2008-2010. But all that talk about whether or not we're going to double-dip seriously misses the whole point -- we basically already have! A total of 1.6% cumulative growth in the U.S. GDP over the first half of the year? Where I come from, that's basically a recession already. Or a stag-cession, at best. It's no kind of recovery, that's for sure. And that's what already happened, just in the first six months of 2011. It's a good guess that things have worsened in July and August with all stability completely leaving the financial markets. You can argue till you're blue in the face about whether or not we're going to recess, but in reality, we've already been stagnant as a matter of stone cold fact for not just one but two straight quarters, and we're almost surely in the midst of a ho-hum at best third quarter as well. And that means that we haven't heard the last of the bears in the market yet, probably not by a longshot.

I thought I would leave you on this Friday with two videos from the literal guy who literally started the Tea Party movement in the United States a couple of years ago, right on live tv on CNBC. His name is Rick Santelli, and the below rant from back in early 2009 when the Dow was around 7000 and then brand new President Obama had just started talking about loan modification programs to enable Americans who could not afford their mortgages to modify them to lower amounts that they could actually afford to pay. Needless to say, Santelli went off, and inadvertently started an entire movement. The entire clip really is worth watching, other than the short part in the middle when the nerdy guy talks about something or other:

Once you watch that and become a Rick Santelli fan for life, check out this Santelli rant from CNBC just this past Monday morning, just after the S&P downgrade while we waited for the stock market to open in what proved to be a 630-point down day for the Dow by the time it was all said and done. Santelli really "gets it" in a way that most others simply will not allow themselves to get it:

Governor Rick Santelli. I like the sound of that.

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