Sunday, April 11, 2010

Stock Market observations

One of the many things I've learned is that the more education someone has, the less common sense they seem to have. The Professors have no grasp on reality, no idea how their books apply to the real world, or even if they do.

One example of this is the famous scene in Back to School with Rodney Dangerfield. The Economics Professor outlines the cost of building a new factory with rail and shipping docks. Rodney playing a real world businessman, promptly explains how wrong his assumptions are, and then lays out all the expenses that the Professor forgot. The difference was obvious. One was an academic who had the book answers. One was a real world businessman who had the real world experience.

For the last several years, I've been listening to the experts talk about the economy. During the Bush years, it was the worst economy for fifty years. Despite low unemployment and a high stock market. Yet, in 2002 I told the wife that the housing market couldn't keep rising like that. We had many discussions, where I insisted that the housing market was rising faster than it could possibly be expected to. It couldn't last I insisted.

It didn't. Yet it was a huge surprise to all the experts. Despite the common sense observation that the more the houses went up, the fewer people could afford them, thus the fewer people would be available to buy the houses. That would change from a Sellers Market, to a buyers market as the pendulum swung and prices would have to drop to help generate demand.

Now, for the last year, we've been hearing how we're in a jobless recovery, and how the economy is doing just fine thanks. Yes the Stock Market has been going up. Inexplicably to my way of thinking. How can people want to shove money in the market when they know the Democrats are going to increase taxes on them? When the unemployment is double digits, the place for money is not buying stocks, it's in safer long term investments. Gold is going up, so I can see that many people are taking this conventional wisdom to heart. With all the debt the Government is creating, people are not buying Treasury Bonds, which means that they think they can make more money elsewhere, or they think the US Government is going to Default on the loans.

Yet, the Market keeps going up. What I couldn't figure out was why. I assumed that Democratic Supporters like George Soros and others were buying slowly to keep the market moving up. The Banks would not take their TARP money and put it into the market, they needed it to shore up the bottom line to keep their banks from being seized under the new rules. So why is the market going up?

Today, I found a news article that explains some of it. The market is moving up, but very few trades are going on. So a vast majority of investors are not buying, or selling, they're waiting. Most people it seems may have more common sense than I gave credit to the experts for having. So the value is going up for the stocks, yet, no one is buying them, and no one is selling. Now, as for my common sense prediction on this.

The market is going to fall again. People are getting worried that they're going to have another round of losses. With continuing double digit unemployment, there is no one to buy the products that companies are making. GM has Hummer joining Pontiac, Oldsmobile, and Saturn as lines that are being shut down. That will lead to more unemployment, not just at the factories, but at the dealerships, and all points in between. Truckers won't be hired to move the cars, or the parts to make the cars. So the unemployment stands to increase, again.

That unemployment coupled with the stupidity of the eco minded managers at GM will cause the company that is too big to fail, to fail. GM is putting it's future on the Chevrolet Volt. A car that can go 40 miles on just electricity before the Hybrid portion kicks in. Yet, the car costs an estimated $40,000. In order for that car to be economical for the average user, gasoline prices will have to jump to over $10 a gallon. Riots will result before it reaches $7 a gallon, so that shouldn't happen if we expect society to remain in it's current form.

Now, obviously $40,000 can get you a very nice car. However, if you're just buying transportation, something economical, you can buy a dozen different cars and have money left over. An example, the Ford Fiesta which goes on sale this year is going to be getting 30+ miles per gallon, at a cost of about $15,000. You can buy a lot of gasoline for $25,000 can't you? Or the Volkswagen BlueMotion series that gets up to sixty miles per gallon for about $25,000.

So GM is set to fail, betting on a car that nobody in their right mind would buy. Especially when you consider that 10% unemployment means that more and more people are going to be worried about food and shelter than which cool car they drive.

The shills are in the Stock Market, but don't listen to them, listen to your common sense. Nobody has ever heard of a Jobless Recovery. Recovery means that JOBS are available for the population to WORK and PRODUCE at. Government doesn't produce, it confiscates. Government jobs are NOT good jobs for the economy.

Get ready for the second big drop friends. My instincts tell me it's coming, and I honestly hope I'm wrong.

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