FOOLS RUSH IN...

Carl F. Worden

10/13/08

 

 

So the Dow ended way up at 936.42 today, setting all kinds of records and bringing the Dow back to 9387.61, but don’t be fooled because the markets are not going to begin making significant advances that stick until the basic fundamentals of our economy recover.

 

Most of the trading today was by huge fund managers looking for a place to invest 401k funds after a number of good news announcements were made regarding recapitalizing banks in the U.S. and Britain.  Other investments were by day traders making a quick buck before they sell off tomorrow, 10/14/08, and retrieve their profits.  Today’s market was no place for a long term investor and I’m sticking to my original assessment that the market won’t really stabilize until it gets down to 7,400 or less.

 

By the way, in case I misled anyone, if the Dow suddenly takes a sharp dive down past 7,400 and keeps going, wait!  That would be fear-selling big-time and you don’t want to dip your feet in until it stops.  I think it will take awhile to work down to 7,400, so gradual is fine.

 

Now let’s talk about the REAL economic fundamentals of the United States so you know what to expect.

 

Consumer spending in the U.S. is the basis for 70% of our economy, so until consumer spending goes on the rise, the economy won’t really rise either, and never make the mistake of thinking a rising Dow has anything to do with the underlying economy because it doesn’t.

 

The American economy won’t begin to revitalize until the housing mess is corrected, and that is a very long-term problem.  First, home prices must still come down to actual value, and that value was falsely inflated due to speculators flipping homes to each other, and by home owners taking advantage of false home values and borrowing against them.  The whole mess was allowed to blossom by the availability of cheap credit and virtually zero regulations, like not verifying employment and income.  Now, in order for the economy to really begin recovery, Americans will be forced to live within their means without easy credit availability, and that means real pain for years.

 

Living within means with restored regulations will require at least 20% down payments on homes, verification of real income and employment, and that won’t happen until home prices come down to realistic levels.  At the time when our economy was credit-driven, a potential home buyer could borrow the down payment from such awful sources as credit cards, but those days are over, so they’ll have to do it the hard way by saving up every dime.  That’s not going to be a cake-walk either, because few Americans have any real savings other than 401ks, and because too many Americans are living week-to-week on reduced incomes due to the massive job losses caused by the free trade agreements, the prospect for large numbers of Americans to save up the down payment to buy a home is just not possible.

 

That means that if homes are going to be sold at all, the asking prices will have to plummet accordingly, and until homes start getting sold, American consumers won’t be making all the purchases associated with home ownership that run most of the 70% of our core economy.

 

Are you beginning to realize the extent of the problem?  In the meantime, more Americans will lose jobs and the economy will remain in the toilet.

 

No matter what you hear on CNN and Fox, this mess actually began with the free trade agreements signed into law in 1994 by President Bill Clinton in consort with the Republican Congress.  The Democrats were absolutely against those free trade agreements, and Bill Clinton spit in their eyes.  The only real voice heard in 1993 against the free trade agreements was presidential candidate Ross Perot.

 

The free trade agreements like NAFTA (North American Free Trade Agreement) and GATT, (the General Agreement on Trade & Tariffs) allowed American manufacturers to move their high-tech equipment and manufacturing expertise to nations like China, India and Vietnam, while employing workers in those lands for pennies on the dollar, and not having to deal with environmental regulations, payroll taxes, Worker’s Comp or health care.  Almost all the American workers were laid off from those family-wage paying manufacturing jobs, so they had to seek employment that paid lower wages and often no benefits.

 

At first, there was little sign of distress even if individual families suffered.  It was easy to hide lost income when you make it up by charging groceries and gasoline on credit cards instead of paying cash.   As the credit card balances got really high, the housing bubble kicked in using even more credit, so the demise was further hidden from general view because debtors were able to pay off credit card debt by borrowing inflated value from their homes.  When the housing bubble burst, Americans were forced to begin running up credit card balances again and that is where we find ourselves today.

 

The bottom line is that far too American incomes have been slashed by NAFTA & GATT, and few replacement jobs have been created to replace the high incomes and fringe benefits those manufacturing jobs provided.  And what do the talking heads offer as advice?  Well, they’ll tell you the high-paying jobs remaining in the U.S. require a higher lever of education, but how do you explain that remedy to the 50 year-old guy who once earned $70.00 per hour manufacturing automobiles for the big three right out of High School, and is now holding down 2-3 jobs to barely earn enough to pay the mortgage, with no fringe benefits including health insurance?  The poor bastards don’t have enough hours left in the day to even take night classes!

 

Lowered American incomes, almost entirely due to the free trade agreements, are the root cause of this economy coming to the state it is in today, and considering that it took 14 years to really become visible, it will probably take 14 years to return – but only if we elect the right president and Congress.

 

The only viable candidate running for president, who understands and recognizes what caused this pain, is Barack Obama.  Yeah, I know he’s black, but get over it!  I have heard Obama mention the devastation caused by the free trade agreements time after time, and do these unemployed white yahoos hear what he’s saying?  NO!  These trailer-trash morons keep sending me one false allegation against Obama after another, all because they believe he’s a liberal, a Communist, an Arab, a Muslim and you name it.  But what they don’t get is that he’s the only viable candidate that can save their ass!

 

I mean we’re talking about really stupid white people!  John McCain has offered nothing whatsoever to correct the damage from the free trade agreements because he is a corporate whore who is so befuddled he still believes free trade is a good thing for America.  As I recall, Detroit, Michigan is still part of America, and it is a devastated graveyard of American jobs.

 

So Obama is a problem where guns, abortion and gays are concerned?  No, actually he’s not!  Those issues have been relegated to the Judicial Branch.  Outside of appointing liberal judges to the Supreme Court, which must be approved by Congress, Obama has no real say on those issues and has to live with the Supreme Court decisions that have already been made.  In the meantime, a lot of you people out there have guns in your closet, but you can’t feed your family and gas-up your car without using credit cards!  You are facing less employment prospects every day as you get older, you have no health insurance, and you’re worried about Obama being black??

 

Obviously, some of us don’t have our priorities straight.  Nobody is going to take our guns without a bloody fight -- that we will win, by the by, and outside of bombing abortion clinics and slaying gays on sight, there’s not too much left to the law-abiding regarding those two issues either.

 

The simple truth is that this economy, and your pain, is not going to get any better under McCain, but based upon how Obama views these economic issues, he’ll actually get something done.

 

Carl F. Worden