The economy is weak and getting weaker. Jobless claims are rising and durable goods orders are contracting. There is no good news anywhere we look and negative fallout from the Madoff affair. Stocks have been drifting for five days when investors have been hoping for the Christmas rally. It may not be coming this year but on the positive side, the volume on the stock exchanges has been very light. Perhaps a big buy order will come in and bully the traders to let stocks rise. Either way, the year is almost over and it will soon be on to 2009.
Too many people are expecting a January rally which makes us a little nervous. At Wall Street firms, traders typically use this time to sell all unwanted inventory of stocks and bonds while also making sure their remaining inventory is priced very conservatively. 2008 produced losses for everyone so it is the time to take as many losses as possible to give one the fighting chance of maximizing profits next year.
Corporate America is likely following Wall Street's lead as they cut expenses and payrolls as fast as possible. Everybody is trying to forget 2008 but be ready for better times in 2009. Unfortunately, exogenous events always appear to try and spoil the good intentions. The auto company restructurings will be a big concern for the first three months of the year. The bondholders won't roll over easy and we expect a major battle for the majority of the equity of GM. In fact, the government may have to compromise and give the bondholders some of their 20% of the company.
At some point investors will begin to ignore the bad news and look to the future. It is holiday season so let's hope it happens soon so we can all enjoy the new year.
Merry Christmas, Happy Chanukkah, and Happy New Year
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