“NEW YORK (AP) — Stocks slumped Friday after earnings reports from two big banks disappointed investors and a survey showed that consumers are becoming more pessimistic.
The Dow Jones industrial average fell more than 190 points, and other major market indexes were also down more than 1 percent. Interest rates fell in the Treasury market as investors once again sought out the safety of government securities.
The market fell at the opening after Citigroup Inc. and Bank of America Corp. released earnings. The two banks, like JPMorgan Chase & Co. a day earlier, reported higher earnings as losses from failed loans fell. But they are also seeing lower trading revenues because of the stock market’s plunge this spring.
Stocks fell further after a twice-monthly survey from the University of Michigan and Reuters found that consumers’ gloom is increasing. An index of consumer sentiment compiled from the survey fell to 66.5 in early July from 76. That was a bigger drop than expected.”"
“Consumer gloom increasing”….I’ve been stating ad nauseam of the possibility of a double-dip recession. Consumers for the past number of years prior to the meltdown were using their houses as ATM’s and free-spending. Now, not only has the values of their houses gone down, their mortgage payments has increased-many homeowners are “under water”-i.e. the value of their mortgage is more than the value of their house. Fortunately consumers have started (albeit slowly) to start consuming less and save more (current savings rate is approximately at 4%). I believe we need to get to 10%-15% savings rate to really get the private balance sheet fixed. This will require an “austerity” program as well. So far, the United States doesn’t believe it needs an austerity program like those of the various European countries.
Another problem is rising govt. debt. Debt ceiling of the govt. has been only increasing. This problem must be resolved before the economy can really get back on track. Unfortunately I don’t see that yet.
Add to the problems of lingering high-unemployment, pension deficits, social security and medicare short-falls, etc. and the debt problem gets even worse.
Finally, the Dow Jones, even at current levels I believe is over-valued. According to Comstock Partners, the current P/E of the Stock Market (S&P 500) is 16-17. Historically, as mentioned by Comstock, the P/E of the market should get to around 10 to be “fair value”. I see no reason why the Dow Jones cannot go back to its March 2009 lows.
Tags: comstock funds, consumer sentiment, P/E Ratio, US Debt
July 17, 2010 at 1:25 am |
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