Fluctuate

I tell ya’ the economy is bad.

How bad is it?

It's so bad, that when I ordered a burger at McDonalds, the kid behind the counter asked, "Can you afford fries with that?"

I recently read an article that predicted the price of oil would go down from a lack of demand in the United States. Cheaper energy in the United States would increase economic activity and then make the price of oil rise, unless the Chinese continued to subsidize the use of ever greater quantities of gasoline. This, of course, would make the price of oil go up.

Gold is pulling back from record highs. Another article suggests gold might continue to go down as the dollar strengthens or perhaps the problems in the European bond market might cause the value of gold and the dollar to rise simultaneously.

Several different articles suggest things might get better in America, or not. Banks seem to be a little more willing to loan out some of their money. This could help jump start the economy, but no one seems to be in the mood to do any hiring except a few temp agencies. Municipalities and states have lost a lot of projected tax revenues and they have seen their expenditures climb as more and more Americans fall into the social services net. Their bond ratings are dropping, causing the rate government has to pay for new money to increase, lowering the amount they can borrow. If National Health Care goes away, health care stocks will rise. If it comes back they will fall. Even the most defensive consumer non-cyclical stocks, such as Coca Cola and Procter and Gamble (I own both) are worrying about the new tight fisted mood of the American public. Construction, both residential and commercial is as bad as the joke at the beginning of this post. Most people think it will get worse over the next year or two, sending REITs further down into the stock market’s toilet bowl, unless they are close to a bottom and decide to head up.

With increased government spending at all levels, increased taxes are a certainty. The most likely, a Value Added Tax (VAT), a national sales tax starting at perhaps 7% and rising with no end in sight. That would put a dagger in the heart of the recovery, if in fact we are in a recovery.

Oh, and while I am thinking about shoveling the snow in my driveway, blizzards are not a good thing for the economy unless you own a store that is well stocked with toilet paper, bread, and milk. Yesterday the good wives of my little town hit the local grocery store like a horde of Bosnian refugees fleeing a civil war.

J.P. Morgan once had a friend who was so worried about his stock holdings that he could not sleep at night. The friend asked, “What should I do about my stocks?”

Morgan replied, “By all means, sell down to your sleeping point.”

Since the end of October I have been worried that the market was overvalued given persistent high unemployment. I have been slowly moving money out of stocks and into bonds, selling down to my sleeping point. I should have done more, or less. Yesterday was a pretty good day and today the stock futures are up, at least at 5:44.

Isn’t investment research helpful? Another J.P. Morgan quote, once Morgan was asked what he thought the stock market would do over the course of the next year. He replied, “Fluctuate.”

And hey, Please, Please, let’s be extra careful out there today. It is icy and the pavement is treacherous.