I have long held for years that the true bottom of the Stock Market was a figure hovering around the 7,000 mark. Ten days ago, I laid out the following caveat as to how the market in the present week could move below 7,000 points:
“I have written as well as said on radio shows that the only factor that might drop the market below the bedrock of 7,000 points would be the complete collapse of a major industry, such as US Automobiles. The nationalization of the banks might see the market temporarily drop deep into the 6,000s but once all of us get acquainted with the era of the economically unthinkable — socialism — the market will stabilize in the low 7,000s again and Wall Street will hang there like a bottom feeding flounder for a long time to come.” (24 February 2009) See also Stock Market today
The new week did see the market slip 226 points on Monday 2 March) ending under 7,000 points at 6,838.
On Tuesday, the Dow Jones Industrial average and the S&P 500 retreated into negative territory on the 5th consecutive day. The Dow fell 37.27 points. The S&P closed below 700 for the first time since 1996 — the negative result of news that the Obama administration would throw yet another huge wad of taxpayer’s cash, $30 billion, to keep the faltering bank AIG from collapsing.
On Wednesday there was the first rally in at least five business days on news of a Chinese Stimulus plan and some word of exactly what measures the Obama administration are considering to stem further collapse of the housing market. Then came Thursdays’ rumors that General Motors was contemplating Chapter 11 bankruptcy restructuring on a day that Citibank stocks plunged to its lowest level yet, selling at 1 dollar a share. Nearly a 100 percent drop from its 2007 high of $55 a share. GM’s stock this week shrank to $1.28 a share — a number not seen in the share ledgers of America’s iconic auto giant since 1933 during the Great Depression. The Dow on Thursday reeled and fell 280 points to close at 6,594.
It is as I feared. These new thrusts below 7,000 points now cuts beyond the meat of stock market value into the bone and marrow because major banks, AIG and Citibank, teeter on a threshold of collapse or socialization, and the automobile giant, General Motors tries to put on a brave face this Friday, denying the inevitable: bankruptcy restructuring. All sides, Obama, the banks and GM, deny that nationalization by any other name is imminent. Yet, this year 2009 will not close without at least one of these major industry components facing collapse and nationalization.
The marrow cuts in 2009 could reach as deep as 4,500 points before nationalization regrafts the lamed economy’s bones and value in the market then hovers once more at 7,000 points like a circling vulture.
On a positive note, GM’s brave face did in part help the Dow close the week today in positive territory: + 32.50 points to 6626.94.
This, like all the overactive excitement about a modest rally on Wednesday is as uplifting as wearing a happy face button at my own wake.
With that in mind, here’s that New Deal song “Happy Days are here again” with new lyrics:
Happy Face is here again
The Geithner eyes are clear again
Let us ding a dong of Cheers again,
Happy Face is here agaaaain!
(06 March 2009)
UPDATE 01/23/10–See more about the fiscal future in 2010 clicking here: economy news.