Companies continue to reduce earnings forecasts every day and bad economic news never seems to stop. However, the market seems to take everything in stride. Yesterday, the DOW was up 298 points as the promise of a large Obama stimulus package drove infrastructure related stocks up significantly. Most industries followed along.
Last night Fedex and Texas Instruments cut earnings forecasts and this morning Sony and Wyndham Hotels announced layoffs. Can the market continue to ignore the bad news and charge ahead? The market has been up nine out of the last eleven days and perhaps we will see a few more positive moments but we still believe the economic crisis will be longer and deeper than most investors believe.
The auto industry looks like they will get some help from the Government but such a band aid will not solve the structural problems of this industry. Many other industries are also suffering and the Government's balance sheet is already stretched. The bankruptcy process is desperately needed to delever the corporate sector, not public funds. Managements across America thrived when borrowing was unlimited but the party is over and it is time to take the medicine. Congress is right to debate giving frivolous loans and the auto manufacturers won't be the last industry to ask for help. The Federal Reserve and the Government need to be focused on systemic risk and let the private sector work through the problems created by themselves in the glory times.
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