I think its time that we seriously need to start asking ourselves this question. I was looking at some charts this weekend, and I thought all of you would find this one from Doug at Dshort pretty interesting:
As you can see above, the S&P is dropping as fast as the DOW did during The Great Depression. In fact, the S&P is actually lower right now than the DOW was at the same time of The Great Depression.
This collapse is making the 1973/74 recession look like a walk in the park. What's amazes me most about this crash is the lack of any serious bounces. When you look at the GD there was a serious rally after the first initial crash. This was followed by a series of several smaller sharp rallies until stocks finally reached a bottom in 1932.
A lot of market technicians have been calling for a rally since the beginning of the year. Many were thinking that there would be an "Obama" bounce once the president was inaugurated. The exact opposite has happened. The DOW is down over 20% since he got into office. We have dropped 10% in the last week alone.
Its pretty obvious that Obama's policies have been firmly rejected by Wall St. I think the reason for the latest collapse is a result of the escalating war between Wall St and Washington DC. Obama's policies of raising taxes on the rich have not sat well with the pigmen. Our president's lack of clarity around a rescue plan for our financial markets has also been a huge disappointment.
As I had said earlier this week, the market is going to take the financials to zero until it gets the transparency that it wants. The only other plan that the market would accept(albeit with a lot of pain) would be for our government to take the bad assets off of the banks books. The problem with this idea is I don't think we have the fiscal ability to do it without printing. If they decide to play this card, it puts a massive inflation/hyperinflation scenario on the table and I don't think the government is ready to go down that road.
As a result, the government is stuck. I wouldn't touch any financial stocks here until this is settled(if it ever is). The other huge issue facing the government is unemployment. Unemployment rose to 8.1% last month. We are shedding jobs at a rate of 600,000 a month. The revisions to the previous two months were horrifying! If this continues we are toast folks.
The bottom line here is the heat is steadily rising on Obama to do something because things are beginning to completely collapse. Take a look at Bloomberg today:
"March 7 (Bloomberg) -- The jump in the U.S. unemployment rate to the highest level in a quarter century last month suggests the recession is deeper than the Obama administration forecasts and additional measures may be needed to restart growth.
The jobless rate rose to 8.1 percent in February as employers reduced payrolls by 651,000, the Labor Department said yesterday in Washington. Losses have now exceeded 600,000 for three straight months, the first time that’s happened since collection of the data began in 1939.
Unemployment has already reached the average rate the White House projected for the whole year. The administration needs to keep its focus on repairing the banking system and implementing the stimulus rather than get diverted by other goals such as healthcare changes, said John Ryding, chief economist at RDQ Economics LLC in New York.
“They should be focused on stabilization” of financial firms “and stimulus -- and that should not only be ‘Job one,’ that should be the only job right now,” Ryding said in an interview with Bloomberg Television. “The question is, is it recession or is it something worse than recession?”
“We’re going to have to have a lot more jobs than 3.5 million” generated to get a “serious recovery” in the economy, Harvard University professor Robert Barro said in a Bloomberg Television interview. Barro calculated a 30 percent chance the U.S. will slide into a depression, which he characterized as at least a 10 percent drop in gross domestic product."
When the pundits are starting to talk about a 30% chance that we are facing a depression be afraid be VERY afraid. Isn't it amazing that we even have to contemplate the thought of a depression? Anyone talking about such a thing 4 years ago would have ended up in a straight jacket.
Obama, its time to be a leader and make the tough decisions. If you don't there will be a 100% chance of a depression. Time is running out.
This market has been brutal to navigate. I tried to get a little constructive yesterday because I think we are overdue for a bounce. I bought some Chesapeake Energy (CHK) $15 calls. I think going long on a few energy plays makes some sense here. My thought around CHK is how much worse can it get? Natural gas is now down under $4. More importantly, CHK's stock has been holding up very well recently despite the drop. It now sits at $14 which is down from $74 back during the commodity boom.
I could get burned here but I thought it was worth a shot. I continue to hold my Apple short. This worked nicely yesterday thanks to a downgrade. The stock was at $92 When I bought my $85 PUTS. Its now down to 86. I may cover this one soon. I sold my SPY PUTS on Friday. Still holding SRS.
Overall, I am kinda neutral here short term. Stocks never go straight down and I believe we are down 13 of the last 15 trading sessions. Who knows? Maybe this is a once in a lifetime bear that goes straight to the bottom. However, I think we are WAY oversold here so i decided to hedge myself with an energy play.
This being said, if the same recycled crap continues to come out of Washington I plan on getting out of the way on the long side. If Obama fails to act boldly and stand up the pigmen, Armageddon is on the table and we will never be the same.
Lets see what happens next week!