The bear is back! How long will it last?
Today's Financial News - Posted October 15, 2008
After soaring equity prices earlier this week, the bear is back. How long will this last?
by J. Christoph Amberger
Baltimore — (TFN): We saw stock market fireworks on Monday and Tuesday. But when the U.S. equity markets began to decline yesterday before noon, the writing was on the wall: Mene tekel upharsin. Weigh’d in the balance and found light.
Today’s move reminded me of the following stanza in “The Run Upon The Bankers” by Jonathan Swift:
The multitude’s capricious pranks
Are said to represent the seas,
Breaking the bankers and the banks,
Resume their own whene’er they please.
Thus the capricious multitudes of traders and investors, after taking profits on the double-digit increases we saw in the U.S., in Japan, and even in Russia on Monday, today exercised their right to a knee-jerk reaction in response to Friday’s crash.
Whatever fired the surges has burned itself out. The reality of the 2008 crash is that it will drag on for weeks. In all likelihood, there will be chance for a quick burst after Election Day (November 4th). (That’s independent of the outcome: No matter who wins, investors will be so glad to see an end to the empty campaign claptrap, they simply have to buy.)
Then, depression will set in again.
I believe we won’t see a flattening of the day-to-day buying and selling excesses until the second week of December. By then, only those with iron stomachs and leaden constitutions will be left in the market.
But unstable, volatile, bottom-bound markets are bad omens for economic growth. People who review their retirement account statement and see that their six-figure fund manager has managed to lost them a third of their nest egg are unlikely to go on shopping benders. Accordingly, the IMF and national governments are falling over each other reducing growth forecasts for both global and national economies.
Oil prices are sliding in anticipation of hard times: Crude oil for future delivery dropped more than 4 percent today to less than $75 a barrel during electronic trading in New York. One year of price increases have been lobbed off:
When Russian president Medvedev predicted $500 oil in July, oil was about to hit $147. Oil prices have now fallen 48 percent since July. OPEC has slashed its 2009 demand forecast for a second consecutive month. Three weeks ago, their functionaries still saw gold “fairly priced” at $100.
Their sense of fairness has’t changed. But life — which reportedly is “unfair” — will probably knock them down to $50 a barrel before the market turns around.
Which has horrendous implications for those one-trick ponies whose economies depend on oil exports. We may see the gargantuan building projects of the Arab emirates be reduced in scale and execution… at worst resemble the abandoned Tower of Babel (to stay with Old Testament metaphors). We’ll see Hugo Chavez’ star decline as his nationalized economy withers and crude oil revenues dry up.
And we’ll see Russia increasingly get protective about its natural gas monopoly in Europe.
Meanwhile, however, other commodities producers will be hammered. Mines will be shuttered. Mining companies will go bankrupt.
An anonymous TFN source, for example, pointed out one particular company to our TFN editorial staff. A silver miner who has out-leveraged itself to a degree that bankruptcy may seem the only way out of its misery.
If you only read one article today, please make sure this is the one!
Recommended Reading:
*Andrew Snyder: “The Fed is buying: Should you?”
* J. Christoph Amberger: “Slow-motion Crash: Are there lessons to be learned from 1987?”
* Andrew Snyder: “Crude prices plunge: Use an UltraShort ETF (DUG) to make 2-to-1 profits Crude prices plunge: Use an UltraShort ETF (DUG) to make 2-to-1 profits”
Next Article: Death knell of the commodities supercycle: $70 oil by Halloween
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