If you only know me through what I write here on my BLOG you might think I am a “glass half empty” type of gal. Every since I started this blog at the beginning of the year I have been going on and on about the credit crisis, the huge problems in many of the country’s largest companies, the poor and perhaps even pathetic actions of the officials that are supposed to be keeping the American economy out of deep, dark trouble….and that is not likely to change any time soon. There will be a time, I hope, when I have good news to report on, but that day is not today. It is just plain nasty out there with few spots to run for cover. My portfolio, like yours, is surely suffering.
The US markets suffered big losses today as even the optimists seem to be throwing in the towel. The most popular argument I read by those arguing that the overall market is a buying opportunity is that the market, overall, is down a lot. I have never understood that argument and I never will. Just because something is down, even a lot, does not mean it is cheap. Yes of course if the fundamentals are there, and better yet have not changed despite a decrease in prices, then yes, that might be a buying opportunity; but, the fundamentals overall have most certainly changed. Housing prices, and thus consumer wealth, has literally fallen off a cliff, and the same time that prices in general, or almost everything, has gone up. Huge companies across multiple sectors are waking up to find their balance sheets a disaster, or their business models fatally flawed, or their costs increasing, or their revenues plunging, or or or….
Even if you think things are not that bad the risk premium has most certainly gone up, which when you discount future cash flows, ( ie price the stock today ), means that all else being equal the stock price should be lower.
Trust me. I want to see the silver lining, I want people to feel secure in their jobs, and not take a big gulp when they fill up their SUV with gas, but I still think it all is going to get worse before it gets better. As I have said many times before on this page the party for the American consumer is over and the hangover is in full swing.