Everything is Relative!

It seems the current state of the economy, the stock market, the bond market, and our personal feelings are up from last fall. This is a good thing, because last fall it felt as though the world was coming to an economic end. This new feeling has led individuals and families to change many of their values. People have started to spend less and save more. As a matter of fact, people are saving much more than they have for years! Families play games together and share time together again. There seems to be a feeling of “pulling together” to make it through the current economy. Almost everyone knows someone or knows of someone who has lost his or her job. Perhaps our value system is undergoing a fundamental change. Perhaps it is no longer about the huge house, the most expensive car, the most things, but rather about fundamental life needs: a roof over your head, food on the table, clothing on your back, decent medical insurance, and family. The lack of medical insurance is the problem that is inflicting some of the greatest pain on people who are out of work. With all this having been said, we are not out of the woods. The number of new people losing their jobs weekly seems to be declining, but that still means more people are out of work. In early March the jobless claims ran at about 670 thousand and last week it was down to about 600 thousand. The uptrend in claims now extends back to the summer of 2007 and has not been broken. Putting it another way, “continuing” claims have reached 6.35 million, a record! We are now reading about the bankruptcies of Chrysler and likely General Motors. They are not alone, as we see many local businesses go bust along with regional and mid-sized firms. Commodity prices continue to move lower as worldwide demand is down significantly. The lowering in demand is more prevalent abroad than even in the US. While credit markets are better, they still have a way to go before we see the liquidity that is needed. On the housing front we see a glut of homes on the market, selling prices are moving down, and now mortgage rates are beginning to rise again. The above will be dealt with over time. The point is “over time”. I think that between March 10th and May 8th we witnessed an uptrend in what is still a bear market. I could be wrong, but I would not be surprised to see the stock market move down in the coming weeks. My greatest concern is that while the bankruptcy of General Motors is built into the stock, I don’t think it is built into the emotional side of the overall market. History tells us that markets tend to retreat back to their market lows to test those lows. We saw a dramatic low in the market on November 20th of last year. This was followed by a new low on March 9th of this year. Next I believe we may see the market retreat to Dow 7500 and, if it breaks through that low, to move sharply lower. I view this as if the economy has gone through an earthquake and now we are suffering all of the aftershocks. Often we are not expecting the earthquake but once it happens, we fear the aftershocks. It seems likely to me that we are going to see stocks move lower in the near term. The selling pressure has not changed much since November 20th’s decline. With many sellers and fewer buyers, the market should be declining. For now it would seem cash and quality bonds are the best places to have funds. Ed Mallon