Saturday, December 27, 2008

The Spiral down is just beginning...

We are seeing consumers spend less and the possibility of a major retail collapse. You can see it here, here, and here. Consumer spending is the major driving force of the US economy. We are a consuming culture. This is going to force a lot of retailers in to bankruptcy. This will add to the growing unemployment as retail is the one of the last bastions for unskilled labor. Where else in the economy are you going to absorb this labor?
And you know what? This will be the headlines through out the beginning of 2009. This will add to the fear and cause those who still have jobs to spend less. The effect will even cause relatively healthy retailers to suffer as well as restaurants and move theaters. Which in turn causes further cut backs. This will ripple through what manufacturing we still have. The automakers (at least GM and Chrysler) are 100% guaranteed to fail (unless we spend 100-150 billion or so to keep them around). We are in a vicious cycle.
The stimulus package cannot be big enough to save the US economy without itself collapsing the US economy. We need to spend at the rate we did in the last 10 years, whereby we had a negative savings rate. We need the consumer to SPEND SPEND SPEND, tap credit cards, tap home equity, File for bankruptcy, and start again! Its simply not going to limits are being lowered, home values are dropping, and its harder to file for bankruptcy.
Sure we can create new jobs to lessen the impact somewhat. But the cycle has started...and its accelerating.
If you don't believe in shorting...don't think of it as hoping for the US economy to collapse. Think of it as insurance against a US economy collapse. You don't want your house to burn down, so you get insurance. In case it does burn down you will be ok. That's how I see shorting the market.

Well I guess I should post a chart :-P
The orange lines represent the previous ascending triangle, which is a bullish continuation pattern. Well that failed. The red trendline represents another possible ascending triangle. My guess is that one will fail also. The light green channel is a possible bull channel (yes redrawn because the original failed). I believe this channel will fail also.
The gray bar I have marked as hitting the bottom looks too soon. With the holidays and end of year, trading has been extremely light. I do expect the collapse of the market to accelerate in the beginning of the new year.