Waiting for the other shoe to drop.
What is the other shoe, or is it other shoes? The other shoes are the states which have enormous financial problems. Some problems which may have not been exposed yet. In Maryland, the state in which INO.com calls home, we have a $20 billion shortfall in the state's entitlement program. We also have property values dropping and more and more people becoming unemployed. Revenues to the state in property and sales taxes are diminishing rapidly, making it harder and harder for the state to stay in the black.
In California, the problem is even greater and we are not talking about entitlements, we're talking about just running the state. Governor Schwarzenegger was on TV today saying that the shortfall in California is going to be somewhere between 11 and 38 billion dollars in the coming year. This is a huge shortfall for California to make up given the economy and it illustrates just how fast things are going south.
We have to remember that the states are run by politicians, most of whom have never had to make a payroll. For them cutting back and laying off state employees is almost unheard of. But that's what's going to happen to a fair number of states. That situation will only exacerbate the problem we are now facing. Clearly the states cannot continue to raise property tax, or even sales tax as it will push the economy even further down the drain.
So what's going to happen?
For the past 20 years, the majority of U.S. tax payers have been gorging on easy money. As long as everybody could keep borrowing, it did not seem to be a problem. But then... the bubble burst.
Since the early '80s, the savings rate in the US has continued slipped every year. Fewer and fewer Americans are willing (or able) to save money making the American Dream only possible through credit cards which created a housing market gone wild.
With no savings and a national debt of over $170,000 for every man, woman and child living in the United States, it's now time to pay the piper, or in this case China. I am afraid that we're all going to be learning some very difficult and hard lessons about money in the future. When people say, "oh this is like the '87 crash," don't believe it. This is very serious, you've got a collapsing housing market, you've got unemployment rising you have the Government clueless in what to do or who to point the blame at.
The states who spent themselves silly in the last few years are seeing their revenue and paycheck from the people getting cut dramatically. All in all, I see rough seas ahead. It doesn't quite matter if the big three get funding or not, because the die has been cast for a very slow economy in 2009. I do not see the world economy jumping out and starting up again anytime soon.
Now, I know all of this sounds very ominous, but we are waiting for the other shoe to drop. Once the states with budget shortfalls cry for help, I'm sure that the news will be saturated with this new problem.
There will be some fantastic opportunities in the future to trade these markets and some incredible opportunities both in foreign exchange and in the futures markets. Readers of this blog know that we cover all of these markets and we will be detailing some trades in the near future that we believe warrant your attention.
Now here's the question, do you trade on emotion, or do you trade with a solid game plan?
If you trade on emotion then you are probably exhausted as the market for the last several weeks has been like Vegomatic. It has cut a lot of traders and their portfolios to pieces. On the other hand if you are trading with a solid game plan, you must be relaxed and loving life right about now as the markets have provided some wonderful trading opportunities this past year.
I have had a steadfast negative view on the economy, and I see little reason for that viewpoint to change. I do not expect to see a "Santa Claus" rally, as I think there will be further erosion for the balance of December. The run up in the last five days of November was both short covering and fund managers pushing stocks up so that their portfolios wouldn't look so bad at the end of the month.
If you haven't watched my latest video on the DOW, I strongly recommend you take a few minutes to watch and see how this trend has developed and what we expect to see in the future.
Lastly, picking bottoms is just as foolish as trying to pick a top in a market, not to mention that it is almost impossible to do. I am amazed at all of the TV infomercial talking heads that are calling for a market bottom. Many of these same talking heads missed the downturn, so why listen to them now? Mark my words, there will be plenty of time to get long this market. The one thing you can count on is the market which will tell you what it wants to do. Right now it's telling you that it has not finished going down.
The light at the end of the tunnel is in fact a brighter future for all of us, but not in the manner we have been used to. The light may be faint for now... but it's there.
I am looking forward to 2009 and all the opportunities that I know will be coming in the New Year.