I really do think that last week was what we call "capitulation." And I will be surprised if we are not now on a long upward move--w/ lots of setbacks along the way. Under normal circumstances I would predict that we will be back above 11k or 12k on the Dow by year-end; but w/ all the government interventions around the world, all bets are off. I've been around a long time and thought I had seen it all--up until now. What we are seeing today represents a whole new chapter in financial histoire. It will be interesting to see what happens, but I won't be making many major predictions any time soon.
The only things that worry me are that there are a couple of shoes left to drop. We have seen the collapse of the Manufacturing sector in this country and much of the developed world. We are seeing the collapse of the financial sector as we know it worldwide. There are going to be new players coming into the game that will run the board. China, Saudi Arabia, UAE, India. And WE gave them much of the cash to become players with our soaring trade deficits.
We are going to still have to deal with a multi trillion dollar consumer credit crunch that is NOT on the current table and the retail crunch that will be ancillary to that. Those two will provide additional input to the increased unemployment numbers and will increase risk to a LONGER rather than shorter recovery.
Then the REALLY BIG PROBLEM is National Debt. We are at $10T now. The Bailout is going to cost at LEAST $1T more up front plus all the other Nationalization issues. Expect $12T Debt by 2010. The current COST of the debt is $600Billion [20% of revenue]. As debt goes up, that will rise to 25%. Taxes will have to go up just to service debt. If we can't/don't pay for the debt service, then the Debt just goes up an additional $600B annually. Most owned by folks like China, Saudi Arabia, UAE, India.
This is a BIG ASS HOLE we are in. We cannot buy our way out of this one.
Dig out your gray cloud guy.