"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey
We arrived in Ft. Lauderdale late yesterday afternoon, and I want to share a few observations with you.
The first observation may be obvious to some, but I was shocked to see the price of diesel fuel. I was seeing prices like $4.10- 4.15/ gallon for diesel. This is unbelievable!
The other thing I noticed was the scarcity of trucks on the road. Normally when we go on a trip we see several semi trucks on the road. This was not the case yesterday.
In addition to the scarcity of 18 wheelers, I noticed that the number of SUV's on the road has declined dramatically. Higher fuel costs will definitely be felt by consumers as corporations will pass on to the consumer.
Clearly, something is happening in the economy that has not yet been fully discounted by the stock market. I realized the PPT (plunge protection team) has been working overtime to prevent the stock market from caving, but we have some serious issues in the economy.
We all know about the issues with Real Estate, CDO's/SIV's, Consumer Debt, Bank Liquidity, and Lower Corporate Profits, but if energy prices do not begin to fall dramatically, the U.S. economy may suffer a prolonged recession.
Today, was a lack luster day in the stock markets. I am wondering if the PPT has enough power to continue holding the markets together. In years past, the stock market would have already experienced a 25-50% decline.
According to the good people at S&P, the daily swings of U.S. stock market are the most volatile they have been in 70 years. I was a little scared to do the math, but 70 years ago was 1938.
Yesterday's follow through rally of 187.32 points came after J.P Morgan increased its bid for Bear Stearns from $2 per share to $10. This revised offer is still miles below Bear Stearns 52 week high of $159.36. Rumors are now circulating that BSC could fetch $65/ share, but I would not get sucked into this obvious game of chicken.
This morning the futures were pointing to a higher open after Bob Doll of Black Rock hinted that the stock market was nearing an important bottom. Shortly after the open, Mr. Dolls comments seemed a bit premature. The release of the March consumer confidence numbers showed the index had fell to a five-year low, and consumers' outlook on economy for the next six months fell to its the lowest level since 1973.
You do remember 1973-74 don't you?
After the consumer confidence numbers were released, a private survey of home prices in metropolitan areas showed a record year-over-year decline of 10.7% in January. On the news, the dollar declined and gold prices rallied on bets that more rate cuts were coming in the weeks ahead.
Shares of Bank of America (BAC) led the DJIA lower after a Merrill Lynch analyst downgraded the stock to a "Sell" from "Neutral". While many of the high quality banks are in the bottoming process, I believe Merrill Lynch is once again late to the party in downgrading BAC to a sell when they should have seen this train wreck coming months ago.
In any event, I continue to be cautious, and still advise sticking to the discipline of buying stocks at these levels on the Dow;
% Declines from DJIA High of 14,198:
10%= DJIA 12,749
15%= DJIA 12,041
20%= DJIA 11,332
25%= DJIA 10,624
For today;
DJIA: 12,532.60, down 16.04
S&P 500: 1,352.99, up 3.11
NASDAQ Composite: 2,341.10, up 14.30
