How bad is it? How bad is it going to get? When?
from John Hussman
I am very concerned that investors and even Congress have swallowed the “chain reaction” theory hook, line and sinker. The fact that they have makes me more concerned about crash risk, not less. In any event, it is wishful to believe that a $30 billion misuse of public funds has suddenly put problems of mortgage foreclosures, profit margin risks, rich valuations, and an oncoming (not outgoing) recession behind us.
from John Mauldin
the business sector has kept inventory accumulation to a moderate pace, has limited in capacity growth, and has been conservative in adding to debts outstanding. How lucky can you get?
… bear markets are made by continued earnings disappointments. It typically takes at least three difficult quarters to truly disappoint investors. We are just in the early stages. The recent drop in the stock market has been primarily caused by the Continuing Crisis in the credit markets, and only modestly by disappointing earnings. We need a few more quarters of disappointment to really get to a bottom in the stock market. It could be a long summer.
SO is pessimistic about the near future, but I’m inclined to go with the more pragmatic views of Hussman and Mauldin. Things are pretty bad on the consumer side, but things could be worse. SO maintains that the business side is ramped up to produce stuff that consumers don’t need and won’t want in the future. This is worse than having inventory of things people will want and need – just wait and you can sell it off, then (cheaply) resume production. If all you are able to produce is stuff that won’t sell, it will be expensive and time-consuming to change direction to produce something useful. Lower stock prices, and lower P/Es are likely. This will take… drum roll, please – INVESTMENT and personal SAVINGS.