Weekend Stock Market Discussion

New Fed Programs
I don’t think the Fed’s new mortgage and consumer-credit lending programs will cure the recession. During the last recession in 2001-2002, we had a normal credit environment with a healthy banking system. And yet, we still had a nasty recession and one of the most fierce bear markets in history. The primary reason was that corporations had overbuilt their technology infrastructure and ceased further investments.

While we have an historic credit crisis on our hands, that isn’t the real cause of the recession. Just like last time, we are overbuilt. We have too many houses, cars, malls, hotels, etc. Thanks to Alan Greenspan’s easy money policy, we went berserk and built way too much of everything.

Even if a normal credit environment could be magically restored on Monday, it would not halt, and reverse, the direction of the business cycle.

Obama’s Economic Team
Cramer says that we shouldn’t be so negative on the economy any more because of the wonderful team Obama has put together. Whether or not this team is as fantastic as it is being billed, there is no man who can reverse the business cycle.

The cycle will cycle. Get used to it.

Depression Era Bear-Market Rallies
Yerk brought up the topic of the gigantic bear-market rallies of the 1930s, but I am thinking that we won’t see such rallies this time. Back then, they didn’t have good unemployment statistics. In 1928:

“Baltimore, which had started the practice of sending police knocking on a door-to-door journey, reported 42.5% unemployed, the highest in the nation.”

(That quote can be found on page 159 of the 1928 chapter of this book. The links to all of the book can be found on CyclePro. Thanks to Sherry for the CyclePro link.)

So, as much as we like to criticize our government statistics, we don’t need to send police officers door-to-door to count heads. And we are not likely to be caught by surprise by anything as were the traders of the 1930s. I’m thinking that we might see very large trading ranges like we have experienced since October 10th, but not the unrealistically hopeful rallies of the 1930s.

CNBC Copycats
Today, Fast Money showed a chart of how the market has plunged at the beginning of each month recently. But you heard it here first months ago. I posted my New Month Massacre chart here and here.