Hitting the Stock Market Bottom

Last Friday (21 November 2008), the Dow Jones plunged into the 7,400s before it rallied almost plus-500 points upon the markets hearing that President Elect Obama will name New York Federal Reserve head Timothy Geithner as his Secretary of Treasury.

Obama’s administration continues to frame his future administration as centrist and Clintonesque. Geithner was Under Secretary of the Treasury for International Affairs (1998–2001) serving President Clinton’s Treasury Secretaries Robert Rubin and Lawrence Summers. Geithner left the Treasury in 2002 to join the Council on Foreign Relations as a Senior Fellow in the International Economics department. He was also director of the Policy Development and Review Department (2001-2003) at the International Monetary Fund. He’s fluent in Chinese and his wide and meritorious global market seasoning indicates Obama is thinking global in his solutions to the economic crisis. The darker cloud inside this silver lining is that Geithner being current head of the New York Federal Reserve is in the epicenter of this historic stock market and banking earthquake. He’s at work on the problem already. So far, not so good. That could of course change.

After Friday’s rally, the new financial week opened this Monday with a second day in the pluses by just under 400 points, closing the first two-day rally in the market for the month of November. Two things infused a little glimmer of hope on the big board at Wall Street. Obama, this Monday, presented his final choices for his economic team quarterbacked by Geithner: He presented a gaggle of can-do the DOW, bright eyed and bushy tailed folks mostly in their mid-forties (veritable “young wise guys and gals” (young like the president himself). Along with Geithner, there’s “Larry” Summers, a treasury secretary under Bill Clinton, becoming director of Obama’s National Economic Council (NEC). Christine Romer heads the three-member Council of Economic Advisers and Melody Barnes will be director of the Domestic Policy Council.

The market heard, saw and soared on the hope that Obama will inject to jump-start this economy with brainy, centrist new forty-something young bloods to lead Obama crusade to, as he likes to say, “Jolt” the US economy back to life. In other words, his ER emergency deliberator team is ready to tear the economy’s shirt open and yell, “Clear!” once they are in power. I don’t know if the economy can wait that long. Its credit heart isn’t beating right now.

The second reason the market converted a financial cross of crucifixion to the margins in two days was a bit more lame. The limping “Aflac” Duck president snatched some of Monday’s limelight, grabbed a “Harry Hank” of Secretary of the Treasury Paulsen to go forth and do what the Bush Administration does best: throw some more taxpayers’s money at a problem — a lot of it.

Happy Thanksgiving, bad debtor banking giant Citicorp.

Here’s $20 billion more to throw after the $25 billion bailout we already tossed down your voracious and risky debtor Kitty of inflated loans and securities. Now may your pink slips to an estimated layoff of 52,000 employees around the world be made of finer stationery.

When Paulsen throws money, it can get you a modest rally of a few days. Will this one be sustained? Especially with the announcement today that oil producers will cut production to stop the leak in the OPEC oilcan’s value from plunging below $54 per barrel. I have stated in writing and on radio for over a year now my sense that oil’s true value hovers in the $70s per barrel. Hints of a rise in oil prices might take the markets beyond a two-day rally. We’ll see what tomorrow (25 November) brings up on the big board.

We might have already reached the low end of the Stock Market’s value, which I’ve predicted on Coast-to-Coast Am and other shows as far back as January 2008, is somewhere between 7,000 to 7,500.

Friday it foundered to 7,400 and although I predict the worst blows of this economic storm are bearing down on us to dominate our lives for the next two years, I hold to the intuition that we now have touched the bottom of this market, somewhere in the lower 7,000s. We’ll go down into that muddy place more than once in the future 12 months, but not deeper into the bed rock stocks under 7,000.

John Hogue
(24 November 2008)

More economic predictions.

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