So, where is Wall St. (and the US economy) heading? Discuss.

[EuroObserver]

To maybe kick off some discussion this weekend, I thought I'd post these comments and analysis from Reuters as at noon ET Saturday. Those especially interested may also like to look over Friday's DU Stock Market Watch thread if you haven't done so already.

Profits key if stocks are to recover
Sat Jan 21, 2006 11:40 AM ET
NEW YORK (Reuters) - Digging out of the red will be a tall order for U.S. stocks next week after Friday's big losses unless the corporate profit picture improves and the international tensions driving oil prices through the roof ease. Stocks ended this week with their biggest fall in nearly three years on Friday, and the magnitude and breadth of the decline could shake individual investors' faith in the market, leading to additional selling on Monday. Friday's selling was a sign investors had realized weak earnings early in the week were not one-time misses but part of a larger trend, Alec Young, Standard & Poor's equity market strategist, said. "You never get drops of this magnitude without something serious going on," Young said. "It's not a pretty picture, and it clearly caught a lot of people off guard." Retail investors were likely to look at the selling and push the market lower on Monday, Young said.
...
For the week, the Dow shed 2.7 percent to 10,667, the S&P lost 2.0 percent to 1,261 and Nasdaq ended 3 percent lower at 2,247.
...
U.S. crude prices gained 2.2 percent to $68.35 a barrel on Friday in New York after al Qaeda threats added to worries about supplies from crude exporters in Iran and Nigeria. Oil prices have gained 23.4 percent since their 5-month low of $55.40 hit in mid-November.
...
Earnings at companies in the Standard & Poor's 500 index were projected to have risen 14 percent for the fourth quarter of 2005 before the reporting period began, according to Reuters Estimates. Of the S&P 500 companies that reported earnings before Friday, earnings per share for about 60 percent have exceeded expectations. Still, some analysts have tempered their views after weak results and disappointing outlooks from tech heavyweights like Intel and Yahoo Inc. Next week will bring earnings from about 150 S&P 500 companies, making it the busiest reporting week. The companies include Microsoft Corp., American Express Co., 3M Co., General Motors Corp. and Johnson & Johnson. Other highlights include Bristol-Myers Squibb, Qualcomm Inc. and Sun Microsystems Inc..
...
On the economic front, an advanced GDP report on Friday is likely to show the U.S. economy expanded at a 3.1 percent annual pace in the fourth quarter of 2005, down from 4.1 percent in the previous three months. Other economic gauges next week include new orders at U.S. factories in December, due to be released on Thursday. Also next week a report on existing home sales, due on Wednesday, is forecast to show a drop to 6.9 million sales in December, which would make it the third consecutive monthly decline. U.S. new home sales are also expected to have fallen in December. A report is due on Friday. /more...

see also (earlier Reuters analysis):

Wall St tries to catch its breath after "blood bath"

Fri Jan 20, 2006 6:32 PM ET
NEW YORK (Reuters) - After Wall Street's worst day in almost three years, some stock traders headed home on Friday to lick their wounds and settle in for a weekend of worry. "What a blood bath today," exclaimed one trader. The first thing to do was take a step back and try to figure out if Monday will present any buying opportunities rather than dwell on what happened, he said. "If it steadies here, and bargain hunters come in, it'll all be forgotten," said Rick Meckler, president of LibertyView Capital Management, in Hoboken, New Jersey. "But if you see some accelerated selling on Monday, that'll be when people begin to question whether this is the start of a real downtrend."
...
Stocks often bounce back after selling off in response to nonfinancial news like security threats or weather catastrophes.

Equities traders worried the volatility might scare some investors out of stocks and into other assets. U.S. interest rates have been rising for more than a week and commodities ranging from oil to gold have also climbed. "The alternatives to equity investment today, when money market rates are as high as they are, are much different than they were a year ago," said Meckler. "It gives people more of a choice when there is some bad news."
...
"You have gold making a high, and gold at these levels is kind of a red flag. Maybe there's some money going out of equities," said Jim Fehrenbach, head of institutional sales and institutional trading at Piper Jaffray (PJC.N: Quote, Profile, Research), in Minneapolis. Come Monday, some traders said, they'd have to keep a cool head and be back with new investment ideas. /more...

and:

US stock sell-off has investors asking where to?
Fri Jan 20, 2006 6:23 PM ET
NEW YORK (Reuters) - With U.S. stocks suffering their biggest single-day loss in almost three years on Friday, investors wondered where the money was going as gold hit fresh 25-year highs and oil surged to above $68 a barrel.

The bond market ticked higher at the end of the day, a possible sign of a flight to safety as often occurs when investors fear further declines in the stock market. But the bond market is expecting a large supply of treasuries in coming weeks, and investors who might normally pile into bonds may be waiting for prices to go lower.
...
"I can't find a central theme this time" for the stock market's decline, said David Dreman, who oversees about $13 billion in assets.

Oil surged higher, which can bode well for energy companies, but there wasn't a flight to safety, which is surprising, Dreman said. /more...

...Your thoughts?

[Demeter]

1. Party Like It's 1929

That's the only reason I'm glad my grandparents are all dead--so they don't have to endure it again.

[EuroObserver]

2. So you forsee a crash and burn depression? n/t

[Warpy]

11. My dad may or may not be on his way out

and I sincerely hope something happens to him before the crash so he doesn't have to endure another one.

Yes, a crash of some sort is coming. The endless tax cutting at the top while depressing wages, offshoring the decent jobs, and generally choking off the consumer economy while racking up huge debts both at the national and personal levels add up to an unsustainable economy.

If Stupid is impeached and we get the neocons the hell out of office we may be able to stall it, but without radical reform the system is set to crash and I don't see wimpy DLC Democrats radically reforming anything.

[Clara T]

3. Wall Street is concerned with financial arreangements

not a true reflection of oikonomikas (economy) and in fact how Wall $treet is doing has for the most part an inverse relationship as to how most folks are actually doing and certainly has no relationship, other than a destructive one, with how the ecosystems are doing.

Time we stopped thinking of Wall $treet as anything other than the Syndicate and wicked money changers that it embodies.

If the GDP is up why is everyone (except the investor elites) down?

[EuroObserver]

5. I'd cetainly agree with you there, in its current incarnation.

...What's worrying is the the destructive part of that relationship, and the question: if so, how soon?

[Greyhound]

4. Irrational exuberance and fear in the market,

where have I seen this before? Hmmm.

[Frustratedlady]

6. I Pulled Out of the Market

last summer and placed it in a safe, interest bearing account. I didn't like the numbers then, and I don't know diddily about the stock market. Was I wrong to get out?

[carolinalady]

8. yes-great gains last half of 2005. My husband and I went to cash

yesterday until things calm down a bit. I am not an economist but I do follow the market pretty closely. There are some unknowns out there right now that make it kind of scary. Iran and China being #1 and #2. What happened yesterday was a disaster of Wall Street's own making. The reason companies were dropping was not because they did not make money, rather because they did not make AS MUCH money as the "analysts" had predicted. I took a position on a company the other day that dropped almost to its 52 week low because they only made 4cents a share profit and the analysts were looking for 7 cents. The company is 30 years old with over 800 employees. They have 49 million dollars in cash and 79 thousand dollars in debt. It makes no sense that they should get hurt that bad, so I bought it. There will be other deals out there next week. If you know how to look at financials and have the ability to move your money in and out at will, you may want to take a look at some of them.

[EuroObserver]

10. As you say, there seem to be some crazy analysts

and nervous investors around... And also geopolitcal (and US domestic political) tensions looming.

[Frustratedlady]

12. I almost jumped back in at the end of the year

but chickened out. I can't afford to take chances. With all that is happening in the world, too many things can affect the market. At least I'm drawing better interest than I could be. Thanks.

[SmokingJacket]

9. I've always had my money in CDs

Even when the rates are low, at least they're guaranteed. I have family members who got INTO the stock market in 2000 -- whoops! Only recently have they got back to their starting point -- but how long will that last?

If I had money to lose, I'd risk the stock market. But I don't!

[Birthmark]

7. I think the economy is headed here:

[Loge23]

13. The Pipers here. He wants to be paid.

There is still an awful lot of cash around but its primarily at the top. This generation of capitalists are not particularly interested in investing (creating jobs); they are far more likely to create a more temporary cash flow by building a McMansion, buying a ultra-car, and partying in the Caribbean. I see a bigger chasm growing between those with & those without.
Service workers (including construction) can stay busy, but they are hardly getting richer. Health care is through the roof along with insurance, energy, housing, and a rapidly rising price index. These are the major expenditures of those without. While this is pocket money for the rich, the rich's inability, or disinterest, in wealth distribution will eventually catch up with the economy.
In my little corner of the world I see storm clouds ahead. Houses have stopped selling - the supply has flooded the demand. Luxury purchases may be slowing as well based upon my niche business reports along the Eastern seaboard.
Finally, the massive debt incurred, and held by China, indicated that any significant wealth distribution to the lower income levels may be impossible - just not enough dollars to go around.
If the rich take a significant hit in the market, it's look out Nelly.
If the energy prices spike again (and that's not looking to good right now), it will too much for the average consumer to bear.
Bottom line: Brace yourself for a rough ride.

[EuroObserver]

17. Yup. I see a "Constellation Effect":

Ordinary people's over-indebtedness, low savings level and declining ability, and maybe desire, to consume; housing bubble bursting; oil and gas prices causing heating, air-conditioning, transport and most all the other costs of an essentially profligate society to rise; geopolitical factors; corruption and malfeasance in the highest places; declining educational and healthcare standards and r&d (except military) and what looks increasingly like a burgeoning war economy... It seems to be all coming together pretty much at the same time.

For example, the conjunction of many of these factors as described by James Howard Kunstler in his article 2006: The Year of Oil Collapse?:

...

You can only introduce so much perversity into an economic system before distortions cripple it. From 2001 through 2005, consumer spending and residential construction had together accounted for 90 percent of the total growth in GDP, while over two-fifths of all private sector jobs created since 2001 were in housing-related sectors, such as construction, real estate and mortgage brokering. Much of the money spent did not really exist except as credit -- incomes as yet unearned, hallucinated liquidity, wished-for wealth, all based on the expectation that house values would continue to rise at 10 percent to 20 percent a year, forever. It became a reckless racket, all predicated on sustaining an economy that had lost its other means for generating wealth -- foremost its infrastructure for making things besides suburban houses.

...

The suburban housing bubble and its related activities were predicated on the idea that we could continue building out a living arrangement dependent on cheap oil and methane gas, and that all the subdivisions and strip malls would retain value for decades to come. Of course, this was the central delusion of the suburban sprawl economy, because it was obvious to anyone who gave the situation more than a cursory glance that cheap oil and gas were the things we were least likely to have in the decades to come.

This reality had begun to penetrate the American collective consciousness and will be represented in 2006 by millions of individual choices to not buy a new suburban house, either because the individuals fear the expense of long commutes, or they fear the cost of heating a 4,000-square-foot house occupied by only a few people (or both). As the inventory of unsold new houses mounts up, the prices of all houses, new and old, will start to go down. There will be enormous psychological resistance to this reality, expressed in a lag of correct pricing, as the owners of these value-shedding "investments" wait for the bubble behavior (anticipated 10 percent to 20 percent asset appreciation) to return. Eventually they will get the picture.

The velocity of change in the housing bubble (and the psychology involved) will be greatly affected by oil and gas prices. It seemed to many of us watching the energy markets that the world may indeed have passed through its all-time oil production peak in 2005. Production in 2005 was nearly flat over 2004. The world was producing and also using roughly 82 million barrels of oil a day. Oil coming into new production was not making up for signs of depletion showing among virtually all the world's major producers. Iran, Russia, Mexico, Venezuela, the North Sea and, of course, the United States, were all past peak.

...

The United States entered into the military phase of this turbulence before any other nation. We used our superpower status to set up a centrally located Middle East garrison in Iraq, under the idealistic cover story that we were removing a dangerous head-of-state and helping to set up a model democracy that would invite us to stick around the vicinity indefinitely and thus retain some control over the deportment of other oil-rich states in the region.

/more...

Very worrying for (the ordinary people of) the States and very worrying for the entire world.

ed. I really recommend reading the whole of this (gloomy) article.

[OrangeCountyDemocrat]

14. Buy GOLD!!! nt

[savemefromdumbya]

15. bankrupt?

[Deja Q]

16. Well, when people can't afford to buy the goods...

Return the offshored jobs to America and the problem is solved.

I mean, with a shattered economy, they may have millions of dollars or euros, but converted back into dollars, it's still zilch. Surely the execs would accept some short-term losses, which in turn would lead to greater gains because *gasp* people are buying again?

[EuroObserver]

18. Sure, but by then you'd have to restart manufacturing from almost zero,

and using what capital?

[Deja Q]

19. IT replaceed manufacturing...

It wouldn't take much at all to bring back IT.

And China can keep manufacturing.

[EuroObserver]

21. China can keep manufacturing

But, in a US depression, would there be enough employment, and would the dollar be strong enough, to pay for the goods (assuming such a still-globalized economy)?

[gulliver]

20. Moved over half of my money to European and Canadian ...

... currency denominated mutual funds about a year and a half ago. I've been exceptionally happy with both, ecstatic about the Canadian. It's a hedge against the decline in the dollar and the Bush-inspired loss in value of "brand America" worldwide. Friday, while my U.S. mutual funds went down, both my European and Canadian assets went up.

[EuroObserver]

22. Sensible move, I think.

I also suspect that's what your government may have to try to discourage, soon (since it contributes to the dollar's fall)...

[Frustratedlady]

23. How does it affect our economy

when a country refuses to take US$? I saw in one of today's threads where Iran supposedly will stop taking US$ in March, I believe. I don't understand.