When Will the Market Improve?
We are rounding out the end of 2008, which will be known as having one of the worst economic times in the history of money. There are few schools of thought as to know what to do in times. Some people sell off all their shares (as seen in the market lately), while others see this as a time to buy. People who involve themselves in massive sell offs might be trying to justify their losses by looking towards the benfits of the write offs given from the government based on losses. Another reason might just be the complete lack of consumer confidence and more and more people are afraid that what little they have left can be better protected in cash or other more stable vehicle structure. Whatever the case may be, this is the very thing that is driving everyone else.
Change is the investor’s only certainty.” - Thomas Rowe Price, Jr.
The flip side to this is that it is a fine time to buy. Shares almost across the board are at some of the lowest we have seen in years. Buffett himself is famous for saying: “Be greedy when others are fearful and fearful when others are greedy.” Seems to be working for him. Just a little bit.
Whether you feel that the market’s tide will turn in January (due to Mr. Obama, or the simple idea that we can’t possibly see a 6,000 DOW) how can you know when the bottom is going to be? We are not advocating, or insinuating, that we know how to time a market, especially one like this, but there are a few things to look at when trying to forecast a little bit. We know of a few time tested trends to weigh when looking at economics for the country. Lets take a peek…
- The TED Spread. This is the difference between the interest rate that the banks borrow from one another and the rate on 3-month Treasury Bills. (Its called a TED Spread from T-Bills and the EuroDollar futures, by the way.) The wider the TED Spread, the more skittish the banks are about dealing with each other. Right now its 2.18, which is pretty high. When we see it below 1%, things will start looking up.
- Watch Real Estate. Traditionally, about one months worth of the number houses on the market can tell quite a bit about the state of the prices of homes in the market. Six months worth of “inventory,” or number of homes is a pretty good number for the U.S.; of course, right now, we have 10 months worth of inventory. Thats not good. Take a look here.
- Unemployment Rate. Not very far from where Frank and I work is the Labor Department. Every Thursday or Friday, they release data about how many people file for unemployment benefits. Lately, it has been running around 450,000 and 500,000 a week, nationally. This is high, and once we see this come back at least 400,000 we will feel better about the over all factors for the market having at least more stability. Here is BLS’ report.
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