This is The Wall Street Digest Hotline Update for Tuesday, January 13, 2009, at 6:00 p.m. EST.
Falling commodity prices continue to weigh on the market. At the close, the Dow lost 25 points, closing at 8,449, while the Nasdaq gained 7 points, closing at 1,546. The S&P 500 gained slightly more than one point, closing at 872. Oil closed $0.19 up at $38.27 per barrel, and gold closed $0.30 down at $820.70 per ounce.
The economic news is bad and it will get worse. A global recession is underway. A global depression will unfold by mid-2010.
Deflation is the Fed's biggest fear, because deflationary psychology is difficult to reverse. "Why should I buy a home today, when it will be cheaper next month or next year?" As a result, home prices continue to fall. Four-percent mortgage rates would help if our regulators could get the banks to lend money. Home prices still have much further to fall. An 11.2-month inventory of homes for sale weighs on the market.
On Thursday, January 8th, President Elect Obama said, "We will spend our way out of this mess." Investors and consumers do not believe an $800 billion stimulus bill will produce prosperity. FDR tried that with the New Deal in the 1930s. It did not work. The Great Depression of the 1930s still lasted 12 years. The next Great Depression will unfold between 2010 and 2022, a period of 12 years. Pay off all debts. Sell all of your real estate if possible.
The Kress major market down cycles bottomed on December 22. I expect a bear market rally to unfold between January and July 2009. This rally may or may not post new highs in 2009. This will be a temporary bear market rally, not a new bull market. All of the bubbles including commodities, the stock market, and real estate will burst and crash by mid-2010. Nothing can stop the 2010-2012 bear market and recession because all of the engines of economic growth will turn negative by mid-2010.
The next Hotline Update will be on Friday, January 16, 2009, at 6:00 p.m. EST.