October 15, 2008

At least for now the technical indicators for all Major Indexes continue to show weakness. However, given the huge amount of money the World Governments are pouring into the economies, one would expect the Stock Market to stage a relief rally at some point.

The long term outlook, at least for now, still remains very bleak. This of course can change, however this will take some time. A Market fall of the magnitude we have recently experienced does not normally reverse quickly.

I have grave concerns regarding the long term Fundamental outlook for the United States. Previous government stimulus packages have promoted and encouraged the creation of wealth. In the 30s the WPA program used public funds to create a strong public infrastructure which was and still is used in creation of wealth. In the 80s, Government policies provided an economic environment which encouraged industry to invest in private infrastructure; this too was used to create wealth.

More recently, the Government has encouraged, and the population has responded, in the unsustainable behavior of spending more wealth then it creates. Obviously this act of personal deficient spending cannot continue forever. While no one can accurately determine when the “House of Card” will fall, the Stock Market seems to be very uncomfortable with the current situation. An important thing to remember here is that the Stock Market is seldom wrong.

On the surface, it appears that the current bailout stimulus packages only encourages more spending of wealth and includes no provisions for creation of wealth. In my view this is the very concept and practice that has gotten us into this mess in the first place.

While a rally in the Stock Market seems likely, the magnitude and duration may prove to be rather anemic and short lived. Personally, I fear we are going to experience a recession that could be quite sever and prolonged.

Cash will continue to be” King” in this environment. I recommend looking for opportunities to raise your cash levels.

Bob

PS: My editor (and wife) says my writing is too esoteric. This is because I hesitate to express the gravity of my concern for everyone’s financial well being. In a nut shell I believe the Market could fall so fast it will make your head spin. When the Government starts making statements implying a recession is likely, you had better seriously consider the classic line “Hang on to your butts”. Now I am not saying the "Sky is Falling" tomorrow but we cannot continue to spend more than earn forever. Sooner or later we will have to “Pay the Piper”. Wall Street is implying the “Bill” is on the table.