Some day I will say the latter, i.e. we reached a bottom, but I simply do not believe we are there yet. The 2 + 2 math does not add up. I think most of the action this month is in response to the U.S. government throwing another trillion in the fire. I say fire as it will be burned with minimal benefit, in my opinion. I have detailed here why and will not repeat my thoughts. Nonetheless the bounce is extremely impressive. March - not over yet - has been the best month for the market in three decades. And you are questioning why I have been buying put options this week, including some today. Go figure.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHOOUq_1HIfI&refer=home
But let's focus a bit on the 2 + 2 for a moment. Why does the bounce not add up - aside from my view that the Geithner plan will have a relatively modest benefit in the short to mid term and perhaps a negative effect in the long term? Well, simply put, we are not close to out of the woods yet.
Let me count the ways:
- The first "2" in the equation is employment or, more precisely, unemployment. People without jobs cannot spend, they cannot pay their mortgages, they cannot buy homes and they cannot deleverage. These are all in my mind key problems in the current recession and they are getting worse, not better. As Market Watch puts it:
"Nearly 15% of the workforce is unemployed, underemployed, or just plain discouraged."
We are in serious downturn in employment and everything I am seeing says this will continue to get worse into 2010. Mind you, unemployment typically continues to get worse well after a recession has bottomed as employers get burned with a recession and are slow to respond in a positive fashion when it has bottomed. In any event, employment issues continue to complicate things and unemployment is still climbing with a vengence.
As Calculated Risk aptly reports (have I mentioned Calculated Risk is a great site):
"Rex Nutting writes at MarketWatch: Unemployment still rising
The raw numbers, not seasonally adjusted, [show] 6.4 million collecting state unemployment benefits, and an additional 1.4 million who were collecting the federal benefits that go to people who've been fruitlessly looking for a job for more than six months. The claims numbers don't show the whole story. About 4 million more people are officially unemployed but not eligible for jobless benefits. In addition, 8.6 million can find only part-time work and another 2 million have given up looking for work. Nearly 15% of the workforce is unemployed, underemployed, or just plain discouraged.The employment situation is grim, and even if GDP turns slightly positive later this year, the unemployment rate will probably rise all this year and into 2010."
- New home sales, though better than expected, were the -seasonally adjusted - second worst on record. Second to January this year. The chart at Calculated Risk is one of the most impressive cliff dives I have seen.
http://www.calculatedriskblog.com/2009/03/new-home-sales-is-this-bottom.html
- And commercial real estate is in for a world of hurt too. You think vacancy rates are high now with all the bankruptcies, wait until 78 million more feet of space comes onto the market:
http://www.calculatedriskblog.com/2009/03/more-retail-space-coming.html
There are more "2"s to add to this equation, and I will add them as time allows, but y0u get the picture - I hope. We have simply not reached a bottom based on the stats. I could (and hope I am) wrong on this, but those who have followed me for a while will hopefully pipe in on my general track record.
Disclosures: I have put options on GE, MSFT, AA and AXP. They total less than $5000.
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