Gawd, I feel almost psychic. Read this carefully folks…
The joy and jubilation that just last week sent Wall Street to record highs vanished today as negative news about the housing market and rising oil prices hit home in a big way.
Adding to today’s big sell off was a growing inaccessibility of credit.
See, THIS is what I’m talking about. There is so much money tied up in these bogus mortgage Ponzi schemes that people who legitimately want and need credit can’t find anyone to lend them any money. This entire economy is all about credit and debt, folks, so if this keeps up for any length of time, we’re in deep trouble.
Oh, and it WILL keep up… The Fed may throw some extra cash out there to tide us over, but they can’t add much, because the Bushies are still running up $300 billion in deficits and foreign investment isn’t what it was. I don’ t know if you’ve been looking at the exchange rate, but the dollar isn’t worth as much as it was…
It all pushed major markets to close down in the second-worst day of trading this year.
The Dow Jones Industrials Average plunged 311 points, a 2.2 percent decline. The NASDAQ closed down 1.8 percent and the Standard & Poor’s 500 fell 2.3 percent as the market became very nervous.
Stocks only did worse this year back on Feb. 27, when the Dow closed down 416 points and the NASDAQ dropped more than 96 points.
Since then, the markets have had a steady climb up, with the Dow topping 13,000 in April and then briefly crossing 14,000 last week.
Even after today’s dive, the Dow is still up more than 8 percent from the beginning of the year, when it stood at 12,480.69.
So does this mean that it’s time to sell and limit losses?
Not at all, said Hugh Johnson, of Johnson Illington Advisors.
"The one mistake you make as an individual investor is get caught up in the day-to-day and hour-to-hour swings in the stock market. That’s noise and it doesn’t count," Johnson told ABC News. "It’s important to recognize the underlying trend and they’re still positive. But don’t get caught up in the emotional signs of the market, because you will make mistakes."
This is true. Cashing out of the market now would be a huge mistake. We haven’t hit the precipice yet. It’s coming, but it won’t come in the form of a stock market crash this time, like it did in 1929. This time, it will come because our bills have come due, and we’ll have to print money to pay them. Watch the exchange rate, folks. A British Pound is now worth $2.04; two years ago, it was $1.75. When Bush took office, it was $1.48. That is not the direction it’s supposed to go in, especially when the only thing we manufacture anymore is dollars.
Let me change that a bit. That would be a good thing if we were paying down our debt. In fact, it would be wonderful, because it would mean we were saving 25% or so. But we’re still borrowing; we’re still the largest debtor nation in the world. The only thing that’s keeping us going is the fact that countries still want to invest in dollars. Well, they did, anyway…
In the short-run, the real impact is going to be felt by those looking to buy a home.
Lenders have been tightening standards and raising rates as more and more people — including now some with good credit — start to miss their mortgage payments.
"The mortgage terms will not be as generous as they were in 2004 and 2005, when they weren’t only generous but also encouraged speculation," Johnson said.
See, there’s a big problem with this scenario that few are really thinking about, and that is that the inventory of homes is going to balloon, which means a serious price correction in the real estate market. People are going to lose their homes, and a whole bunch of people are going to find themselves in a negative equity situation.
This is where we find ourselves. They can’t cheat in the stock market anymore (much) after Enron. They can’t cheat in a housing market that will probably be depressed for a few years. Where are the greedheads going to skim money next?
Go see "Sicko," by Michael Moore, folks… there’s a clue in there…