Last summer, people like myself knew it was time to turn off the Dow Jones Industrial Average and other stock averages for a few months, enjoy June, July and August, and see what happens in the Fall. This year is different.
Unlike last summer, for example, the European contagion will keep things interesting for the next few months. Last summer, mark-to-model accounting showed us banks would stabilize as their numbers came back better than anyone expected and, if the rules weren't changed in the middle of the game, they would have been much worse.
On this Tuesday morning, June 1, we come off a Friday when Fitch downgraded Spain's sovereign debt rating with a report that France could be next.
See Mish's Global Economic Trend Analysis and the recent posting on France saying its AAA is at a threat, "France Worries about AAA Rating...French Finance Minister Says 'Keeping AAA Rating a Stretch'"
Add on a poor performance last night in Hong Kong's market and a drop in the European market, and today will likely start off low in the market.
That said, we should realize that an entire weekend went by for the market to prepare for all of these events, including commentary that BP's oil mess won't stop until--possibly--August. So much for deep-water drilling in the next, oh, decade.
Some sources are telling me about war with China if we can't pay our debt. I'm not that pessimistic...and I really hope I'm right. But I still believe that the sudden 1,000 point drop in the market last month was Asia at a momentary crisis point and the Plunge-Protection-Team running in to fix the damage.
The PPT is a conspiratorial government body that many believe manipulate the stock markets. George Stephanopoulous admitted to a PPT in a New York Post article and said in 2000:
"Well, what I just want to talk about for a few minutes is the various efforts that are going on in public and behind the scenes by the Fed and other government officials to guard against a free-fall in the markets. You reported just a while ago that the Fed has lowered the overnight interest rates, will put about $80 billion into the market. In addition, the SEC, the Securities and Exchange Commission, has relaxed the rules for companies on whether or not they can buy back their stock in case they start to fall.
"And dozens of companies, including big companies like Intel and Cisco have announced that they would buy back their stock if necessary. Third, there will be some trading curbs in effect today. If the market drops by about 1,100 points, they will probably suspend trading for a while. And perhaps most important, there’s been--the Fed in 1989 created what is called a plunge protection team, which is the Federal Reserve, big major banks, representatives of the New York Stock Exchange and the other exchanges, and there – they have been meeting informally so far, and they have kind of an informal agreement among major banks to come in and start to buy stock if there appears to be a problem."- George Stephanopoulous, 9/17/00).
From a New York Post article, this post was added to a current blog site "Degrees of Freedom."
In any case, the contagion is spreading and even if the market were to bounce back today, I forecast a losing week. May, in fact, was the worst month for Dow Jones in the past 70 years, and the pattern is now beginning to form toward a downward crash, much like 1932 following the 1929 crash (see my last blog entry, "Dow Nadir Will Fall Below 2000").
Watch the markets this week and pay special attention to that U-6 unemployment number because, if that number increases, nothing's in recovery.
Until then, just a reminder, I'm not an investment advisor (but I play one on T.V.) I couldn't resist that line.
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