The Dow Jones Industrial Average fell below 8600 Thursday - bleeding another 7% to continue the incredible losses that have taken place all week. It seems like the much anticipated bailout has not had the effect that many anticipated - rather than assuaging investor concerns that the worst of the financial crisis was over, it was an inadequate levy in a flood of capital out of the equity markets and into more stable gold and treasury bonds.
And there’s reason to believe that the markets will keep falling in the great financial crisis of 2008. Some major macroeconomic indicators point to tough times in coming quarters.
Here’s a top 5:
1. The U.S. unemployment rate has increased to 6.1%, with 84,000 jobs lost in August 2008 alone. Year-over-year employment is now negative, meaning there were more Americans with jobs in August '07 than in August ‘08.
U.S. Unemployment Percentage, monthly, since 1998 (Source:Bureau of Labor Stastics)
A peek at the monthly unemplyment percentages for each month since 1998 show that we’re just a tick below a 10-year high (6.3% in 2003) - and given the economic climate, that number’s not going to shrink. 8.0% unemployment is likely…and the 10% high not seen since 1982 is even a possibility.
2. U.S. corporate tax levels are among the highest in the world, at up to 39% of a company’s income. In a credit crunch that’s making it harder for American corporations to raise money to finance growth, this tax burden is going to make it a lot harder for companies to grow, or to give their employees raises. And this means a higher unemployment rate, and lower consumer spending levels - in a vicious economic cycle that will exacerbate a recession.
Ratio of U.S. National Debt to GDP (Source:zFacts.com)
3. The U.S. national debt is at an unprecedented $10 trillion level. It’s useful to compare the national debt to the gross domestic product (essentially what we owe to how rich we are). The debt-to-GDP ratio was at its lowest point since 1931 when Ronald Reagan took office. It climbed for 12 years under Reagan and the first George Bush, but Clinton reversed the trend. Under George W. Bush, however, the debt has gone back up, hitting 69% of GDP on Sept 30. That’s the highest the ratio’s been since 1955 - and of course, the $10 trillion that we owe is a historical high.
4. Over 70% of U.S. GDP comes from consumer spending. And for the first time, spending habits are reversing in America. For years, the savings rate in the U.S. hovered on 0 - but in 2008, it's climbing to a net gain for the first time in 10 years. In May 2008, for example, when government stimulus checks hit mailboxes, the U.S. savings rate jumped to 4.9%. And given the dour news coming from all economic fronts, and the sorry state of the retail industry as one company after another reports lower earnings, it looks like savings accounts will continue to get pumped with cash as Americans put their dollars away for the future. That’s bad news for an economy that’s in desperate need of liquidity.
Oil Prices since 1996 (Source:Wikipedia)
5. Inflation and the continued weakness of the U.S. dollar. As worldwide demand for commodities continues to climb, prices for oil, corn, coal, wheat, and the other staple inputs won’t hit the floor. While oil and gas prices have fallen quite a bit since huge historical highs in summer 2008, they are still hovering around $90 - quite a difference from 2007, when prices were below $60 a barrel.
And while prices at the gas station and grocery store have never been higher, weakness in the U.S. currency means that each dollar earned buys less. On July 15, the U.S. dollar hit an all-time low against the euro. And as it gains one day against other benchmark currencies like the yen and euro, but loses ground the next, there isn’t much confidence among investors that the dollar will quickly reverse its recent losses. There’s some upside to this that actually may help the economy - U.S. companies that do a large percentage of business overseas will profit when foreign earnings are converted back into U.S. dollars, for example - but ultimately a weak currency is a poor long-term indicator for the economy’s growth.
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This article has 31 comments:
- FuturesTrader
- 10 Comments
Oct 10 08:30 AM- anarchist
- 118 Comments
Oct 10 08:37 AM- varplyer
- 4 Comments
Oct 10 08:49 AMAny guess about how/when the market will change is just a GUESS. The election could trigger a sound of relief or put us further behind. NO ONE KNOWS for sure.
Those who make money trading futures are just good guessers. And because its more emotional then fact..... Working to change peoples emotions about the future can make trading futures a lot easier.
The average american does not understand what shorting is...... they have no idea how much money people are making off the falling prices... at their expense.
And about the "liberal" comment...... You can't make that stuff up. That chart about the Debt is TRUE. Check out the party lines and Satanic Conservatives say Liberals are big spenders.
- User 223247
- 6 Comments
Oct 10 08:52 AM- Dr. Jackpot
- 21 Comments
Oct 10 08:58 AM- frankie cooper
- 45 Comments
Oct 10 09:04 AMso - the sky really IS falling. thanks for the info. now - let's make your article useful - tell us how long it will fall. or will it simply go to ZERO and shut down.... (because that's the impression that you give).
- currious phil
- 3 Comments
Oct 10 09:28 AMDr Jackpot can mow his lawns for less now.
Every cloud has a silver lining.
- PastTense
- 96 Comments
Oct 10 09:49 AM- willynill
- 25 Comments
Oct 10 09:56 AM- derryl
- 87 Comments
Oct 10 09:59 AMRe:deflation of the bubbles: over the past decade with fast economic growth the world's money supply increased rapidly. On the one hand all the people who borrowed that new money increased their debts, but on the other hand all the people who collected all that money by selling things to the borrowers increased their "owned" cash--i.e. debt-free money that they have for spending or investing. All this investment money is seeking a rate of return, but there are not enough productive, economically expandable investments in the world to absorb all this money and create a real economic return by expanding production and profits. So this vast pool of owned money has been sloshing around the global economy inflating whatever sector the herd thinks is hot. It sloshes into real estate and prices bubble up. It sloshes into stocks and the market bubbles up. Right now the imbalance has come to a boil and monetary/fantasy wealth is evaporating as the world tries to contract its money supply down to a level closer to the real underlying value of world economic production and goods. For the US specifically, individuals and the government are in foreign debt so Americans will need to sell more and buy less until those debts are paid down. This means a decreasing material standard of living. If your present standard of living is based on spending 110% of your annual income over the past 10 years, then to get out of debt you'll have to spend only 90% of your income over the next 10 years, which is a 20% drop in consumption. Or you could do it by increasing your production by 20% and keeping consumption the same. Either way, it's time to get out of debt.
- kurt walter
- 360 Comments
Oct 10 10:21 AM- peterthepainter
- 72 Comments
My Website
Oct 10 10:33 AM- derryl
- 87 Comments
Oct 10 10:38 AM- Jake Huneycutt
- 118 Comments
Oct 10 10:51 AMThe second issue is the random railing against the corporate taxes. Mind you, I don't have a problem with people making an intelligent case against the current rate of corporate taxes --- however, the argument runs into some problems when you try to connect it to liquidity.
First off, if companies are losing money, they're not paying taxes anyway --- and normally the companies trying to raise more capital to survive are the ones in the red. Unprofitable companies are actually getting "tax benefits" on their income statement so the corporate taxes actually make them look better on paper than they are actually performing.
With that out of the way, you could suggest that since companies are paying taxes on accurals rather than cash, this forces them to pay taxes before they actually have the money --- however, I don't know that this is the huge issue the author might make it to be. After all, most neophyte companies are building up huge "tax benefits" in their early stages and a truly profitable company (i.e. one that is not trying to create paper profits with inflated earnings numbers) should probably have enough money to pay their taxes.
Perhaps the author is arguing that the corporate tax means people are unwilling to bid up the price on equity, but that also undermines solving another major underlying problem (the massive US debt). So basically, the author seems to be arguing we should simply delay the inevitable by re-creating the illusion of prosperity before getting bit later on down the road.
I won't take much issue with the rest of his arguments and I agree with a few of them. I don't disagree that things are bad and will continue to be bad. However, valuation is key. Profitable companies still have value even if the economy is in bad shape. If a stock sells at $10 and it pays $2 worth of dividends each year and has earnings of $3 per year that look like they'll hold up even through the dark times, then I buy in. I don't sell off on the basis that the economy is in poor shape because that was already (over)factored into the price.
- TripRockYeti
- 13 Comments
Oct 10 11:09 AM- accountant
- 11 Comments
Oct 10 11:15 AM- jlounsbury59
- 327 Comments
My Website
Oct 10 12:21 PMToo many are still in denial. "Liberals" and "Conservatives&qu... are still blaming each other. Get over it! There are a litany of mistakes across the political spectrum. Learn from them but get over it! After a (hopefully brief) period of anger that we could all have been so guilible and stupid, let's put our financial lives back together again.
Facts that disagree with a political persuasion are still being denied by ideologues. It's time to face the music. We can't use mountains of unrepayable personal debt to create wealth (social engineering). We can't cut taxes and increase spending to create wealth (supply side/trickle down nonsense). Are we finally going to find a way to operate based on principles of individual responsibilty, community structure and financial integrity?
- User 270430
- 49 Comments
Oct 10 12:54 PM"
Are we finally going to find a way to operate based on principles of individual responsibilty, community structure and financial integrity?
"
Sorry, but no, this is "capitalism"... where the whole point is to maximize profits. Anything that gets in the way of maximizing profits is to be avoiding as long as possible.
I don't agree but that is the system.
- willynill
- 25 Comments
Oct 10 02:00 PM- HedgeThat
- 6 Comments
My Website
Oct 10 06:24 PM- nullandvoid
- 1 Comment
Oct 10 09:02 PMThe boss and the assistant were never seen again-they moved to Wall Street.
- neutrino23
- 27 Comments
Oct 11 01:24 AMMoreover, corporations receive benefits from paying taxes. Highways deliver goods, an educated population provides customers and employees, public health standards make for a healthy population which promotes higher profits, and on and on.
www.smartmoney.com/inv...
- Rikiki
- 20 Comments
Oct 11 01:41 AMGeorge H. W. Bush was completely flummoxed during his reelection campaign by "It's the economy, stupid". In actuality the economy was showing improvement by summer of his final year. Economists and financial types knew this. But, the "great unwashed" (including th liberal press) are easily bamboozled by trite cliches and swallowed in Goebbels fashion.
Clinton inherited a growing economy and luckily did nothing major to derail it.
Most people today would agree that at the very base of the credit meltdown is Mortgage Backed Securities (MBS) which was inherent in the rush to create "Homeowners" at any cost. This has been a largely DEMOCRATIC progam for decades. And indeed, home ownership has increased... with little regard for the ability of the buyers to repay the loans.
If you are really honest with yourself you will arrive at the conclusion that I did decades ago running my nascent business..... Make sure your debtors have the ability to pay for your gods and services you provided to them.
Unfortunately, political agendas trump common sense and good business practices. Polititians alway deny their mistakes which are dumped onto the future generations.
( ;<( )
Rikiki
c
- paultaut
- 1112 Comments
Oct 11 06:27 AMThe Dollar is at a 14 month high against the Euro so forget about the internationals being helped.
The CRB and almost all commodities are down 50% from their highs, I don't have a clue where you are on this planet but running a commentary on nonexistent conditions certainly qualifies you for Politics. You should run for Office.
- CLH
- 618 Comments
Oct 11 07:31 AMJust a political rant put out by the retarded left. He left out earth warming.
- NoFate
- 150 Comments
Oct 11 03:48 PMFurther, Obama's increased likelihood of election didn't cause the crash! That is the most ridiculous thing I ever heard! His numbers went up because nobody believes McCain can fix it ...your causation is backwards.
In addition, I also disagree with the author on oil and the US$ for the same reasons as the first post.
Finally, it just stuns me how much disinformation is out there ...and what you all buy into sometimes! I am a Libertarian and am sick of being lied to by both parties and their media outlets.
- VegasBob
- 9 Comments
Oct 11 04:09 PMNever in my life have I seen the Republican party conduct a presidential campaign with such vitriol, hatred, deception, deceit and outright lies about the opposition. I've voted Republican for nearly 40 years, but I will vote Democratic in 2008.
- Rikiki
- 20 Comments
Oct 11 07:05 PM2. MBS Creation
"MBS are issued by Government National Mortgage Association (GNMA or Ginnie Mae), Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), and Federal National Mortgage Association (FNMA or Fannie Mae). Mortgage-backed securities typically carry some of the highest yields of any government or agency security" Look it up,VB!
3. Vote for what you think is best for your grand kids... not because you happen to Pi$$ed at nearly everyone off today. Both sides are equally evil in lectioneering. Has pretty well always been so... likely to always be. Hard to believe you are in your 60s.
(: > ))
Rikiki (Democrat, Republican and now Libertarian)
- Wefwef
- 45 Comments
Oct 12 03:45 AM- BxCapricorn
- 140 Comments
Oct 12 07:29 AM- SWRichmond
- 281 Comments
Oct 12 10:06 AMPerhaps like you, I haven't known what to do with new money since 1987. The stock market hasn't made any sense; how could an economy continue to export productive jobs and yet continue to "thrive"? What did "financial services" produce anyway, besides hype, falsely elevated asset prices, and a generation of over-privileged thirty- and forty-somethings that thought they were stock market geniuses?
Now we know: it wasn't real. It was all a giant credit bubble blown first by the Fed, and later by increasing leverage at the "Investment Banks" that were creating money at 40 to 1 ratios. Our friends at Goldman, JPM, Morgan, Lehman, et al.
The principle of investing in a company is to provide it capital (real value in delayed gratification also known as "savings") that the company can put to work adding to the productive capacity of the economy, thus raising living standards. This went out the window some time ago (historians will figure it out) and was replaced by casino capitalism. That was the beginning of the end, in what amounted to a shift from productive industry to fighting over the corpse. Ever-increasing leverage kept the game going for decades, but you can only lie about math for just so long. What we are experiencing now, and what we will be experiencing for the next few decades, is "revenge of mathematical reality." Real wealth increases come from productivity gains, not from "financial services". Now we will all work harder and consume less to make up the difference.
Note to SA: All you jackholes who work in "financial services" need to get jobs making a useful product and bringing it to market at a competitive price. Your trophy wives will take your kids and what's left of your money and move on. Learn to lie about your past.
Or just go ahead and jump.
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