Many analysts are predicting a “bottom” for this current Bear market ranging from the end of this year to the middle of next year. There are the obvious factors like government intervention and the Global Economy (i.e. companies/countries outside of the U.S.) that heavily contribute to the fluctuations, but they are unpredictable when creating your own analysis. So which metrics are key to understanding this current crisis? Two indicators are showing that we’re nearing that “bottom” with a more favorable (or less volatile) oscillation from the Stock Market.
According to the Chicago Board Options Exchange (CBOE), “The CBOE Volatility Index®(VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. ” This statistic encompasses consumer uncertainty with a volatility measure. An increased VIX number shows that fear exists within investors because of a lack of fundamental investment principles existant in the market. In short, the Stock Market is unpredictable. This lack of control can be attributed to multiple disruptive factors such as a lack of education by real estate consumers, Greed on Wall Street, Predatory lending practices, etc., which has led to our current credit stranglehold.
So where does that leave us today? On 10/27/2008, the VIX reached its highest point with the current crisis (and since its inception in 1993), and it’s been decreasing slowly thereafter. A (polynomial) trendline of the data suggests a new trend of decreasing volatility, which could be a good sign for a country needing change. The fact that we’ve hit the “climax” of that volatility suggests that we are going to be experiencing the bottom soon. We can ascertain a closer estimate of that bottom by taking a look at some leading and lagging indicators.
The second variable to analyze is the unemployment rate within certain industries and in the overall U.S. Economy. Since unemploment is a lagging variable, it’s the best indicator of what has happened. Rising unemployment represents a weakening economy. October was one of the worst months in the stock market, as paralleled by a worsening unemployment rate at 6.5 percent or 10.1 million unemployed Americans. Natural unemployment within an economy is typically around 4-6 percent because of various variables (ex./ mismatched skills with available jobs, minimum wage laws, mental capacity, etc.). According to the Bureau of Labor Statistics (BLS), approximately 603,000 more people reported being unemployed in October 2008. The common fear is that this trend will continue within sectors like retail during the holiday season to create stunted consumer spending. As a protective measure, this prediction is causing people to spend less of their disposable income, which is hurting both companies and consumers by not stimulating the economy. This is not to mention the true loss of disposable income with the decrease of home values, stock values, and jobs. On the opposite viewpoint, our leading indicators (ex. Wall Street and unemployment insurance claims) are showing a recessive economy forming. How long will this current state of affairs remain, and where does this leave us in the future?
Until consumer confidence is reinstated into this system, our economy will continue to be in recession (when you incorporate inflationary measures). Quarter 4 of this year will be rougher than previous years, but it will also be a time to put the year and our losses away. Momentum will be gained once consumers regain their jobs, regain their confidence, and regain their trust in one of the greatest Economies this world has ever seen. As a Republican, I believe in certain principles that the GOP has stood for in the past, and it’s time to get back to those principles. Obama may or may notprovide the kind of change this country needs, but he’s definitely going to be facing a difficult situation. I look forward to seeing this bifurcated nation come together to stimulate this economy and boost our self-esteem with the foundational fundamentals of this country. So as for this “bottom”…Well, I personally believe that the U.S. will hit a bottom at the end of Quarter 4 of 2008 or January of 2009. I believe we’ll see a flat economy through quarter 1 of 2009, and we should see some stimulation by the middle of 2009. This is a great time to restrategize your investment options as I shall do myself. There is and should always be great opportunities no matter what bull or bear you must deal with…
Carpe Diem!
Frank!
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