Billmon on today’s Dow drop:
But I think it’s finally dawning on the equity cowboys (as it usually does after the Fed has been bumping rates up for a while) that the end result of a tightening cycle isn’t likely to be positive for earnings, even if it doesn’t lead to a full-fledged recession. What’s different this time, I suspect, is that the market is beginning to realize this may be more true, not less, because the enemy is cost-push inflation instead of the old wage-pull variety. And so today we had the odd phenomenon of the stock market taking a bad CPI report much harder than the bond market, which is supposed to be the more allergic of the two.
It’s possible, even probable, that equity traders are overreacting to one bad number. The U.S. economy might be on track towards a soft landing, in which the gold/oil/commodity bubble pops and cost-push inflationary pressures ease, making it possible for real (after-inflation) wages to grow at a more comfortable pace — without a painful slowdown in GDP or earnings growth. Sure, it could happen, in which case the second six months of the year may be pretty happy ones for both fixed-income and equity investors, and less miserable for the Republicans.
But, on the other hand, if the commodity bubble and the housing bubble both deflate at the same time, and economic growth slows and the Fed takes too many quarter-point stutter steps (or has taken too many already) then things are probably about to go from bad to worse to really rotten, at least as far as the overwhelming majority of American consumers and workers are concerned. And if they’re unhappy (I mean really unhappy) the stock market isn’t likely to get much joy out of life either.
So you have to ask yourself: Given George W. Bush’s luck, what do you think he’s likely to see when the voters head to the polls for this November’s all-important congressional elections — a vibrant, healthy economy? Or yet another stinking pile of manure?
I don’t know and you don’t either. But there was definitely a strong barnyard odor floating above Wall Street today.
I personally would recommend that if you have savings, or stocks that you are not in love with(like my starbucks stocks). Buy gold, with cash, do not put it in a lock box(there are so many reasons not to). Put your 401K stocks into overseas investments., those companies backed in euro’s not dollars. Bonds will become better when interest rates become higher which they will, give bonds anouther year. Stop buying , and start paying off your debt as much as you can. We are going into a period of hyperinflation, driven by numerous factors. The most in your face being gas prices. And Petro is used for everything from fertilizer in the field to produce in the market. Plastics, mosturizer, everything is made of oil by products.Inflation will be close to 15% this year, and a nasty hurricane will bring it to 20%. I worked in the markets during the 80’s for 8 years before, during, and after the crash of 87. To be honest I whissed all my money away on alcohol. And found out after I’d sobered up that I really didn’t need gobs of money to be happy. But its good to protect what you have if you can. Love and Peace All.