The last nine weeks have been witness to an incredible rise for the major market indexes. From the March 9th lows (S&P 666, sign of the beast) we have seen a nearly 36% moonshot advance. It’s been a great run and a lot of fun to participate in but as the average Joe investor starts feeling left out and his greed overtakes his fear, he begins to buy into the market euphoria. For the contrarian investor this is a clear sign that the rally is officially over and the small guy is about to get crushed (again).
As unfair as it might seem… it’s really not. In the financial markets, like the jungle, only the quick and the strong survive. The weak, infirmed (uninformed), elderly and undercapitalized are food for the markets voracious appetite.
A simple look at the economic realities reveal some unrelenting truths.
* Unemployment is now at 8.9% and rising. The number of people underemployed or who have given up looking for work nearly doubles the official numbers. Last weeks initial jobless claims were up 5% to 6.37 million with a record 6.5 million people collecting unemployment benefits… 15th consecutive week of new record highs. Record unemployment figures are NOT a sign of economic recovery. It has never signaled a new Bull Market.
* Commercial real estate losses are estimated to be between $400-$600 Billion by the end of ‘2010 with $270 Billion in commercial real estate loans coming due in ‘09 alone. Jamie Dimon, CEO of JPM Chase has said, “The economy should brace for rapid losses related to commercial real estate.” Commercial real estate losses will be the next financial crisis that will cripple the already desperately undercapitalized banks. The inability to refinance their debt will trigger a wave of foreclosures estimated to exceed $1.8 trillion in loan losses.
* $750 Billion in residential “Option Arms” originated from ‘04-’07 (created by the the braintrust at now defunct Wachovia Bank) with their purchase of Golden West Financial, a leading subprime lender in California and Florida in ‘07 at the height of the housing bubble, will signal the next leg of the credit crisis. As these mortgages reset to adjustable rates at double the interest rate (and monthly payment) the foreclosure rate will soar sending property values to new record lows.
* The Credit Card death spiral. As unemployment hits 10%, defaults will explode. American Express and Capital One expect that 20% of their credit card balances will go bad with Bank of America, Citigroup and JP Morgan Chase at predicting 23%. Just like the bank “stress tests,” these predicted losses are being clearly understated. Talk about credit tightening, unemployment could easily exceed 10% which would be a recipe for disaster.
* The major Money Center Banks and the entire Auto Industry has been effectively nationalized by the Government.
“Only in a rigged game could the banks pull off the hallucination that they were profitable in the 1st Quarter claiming record earnings and profits. This is an insult to our collective intelligence and the biggest heist in history.”
The “small guy” doesn’t have to be repeatedly led to slaughter… They first need to make the decision not to be led at all.
Buy into this market at your own risk. It is similar to getting a job testing trap doors on a guillotine.
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