profitable

A reader emailed me asking me what I thought of the direction of the stock market after the election speech and the stock market activity on Jan 21 2009.  I am sticking to my guns that the stock market is probably going to hover with some spikes and dips and if anything, at least through Spring, will have a bias slightly drifting down.

 

Why do I think that way?  Inefficient Digestion, or more to the point Inefficient Consumption.  The economy isn’t like a well-oiled, hyper tuned race car engine that burns fuel efficiently.  The race car slugs down the fuel and rockets forward.  At least these days the economy isn’t like that.  The economy is more along the lines of a land cruiser or Winnebago.  It takes time to turn the corner as it guzzles cash  and even more time to make a 180 degree turn.  Yes, there is money being pumped into business but that money needs to make it to the average person.  That person is on the other side of the curve at this point in time.  We also need more jobs created quickly to get that cash fuel to the average citizen.  The economy is going to slowly digest the money.  We hope that there will be some left over for us more schmoes who are waiting for the Winnebago to get to us so we can get back on board making money.  Okay, so it is a goofy analogy and it is all over the place but you get the gist of what I am saying.

My own opinion is that as we get good news from company earnings (like IBMs) recently we will see some slight pops but if you look at stocks a few days later (like Intel) you will see the drift of concern is still present and the stocks are going back down.  Depending on the industry, you will see a test of the bottom and in some cases you will see the value get blown out of the water.  What criteria can you judge to see how low can we go?

1.  If a company is still making money and profitable with future earnings still looking consistent, nothing short of war or a major disaster to one of the company’s buildings will keep the value of the stock too low. 

2.  If the company is heavily in debt and already in the single digits, there may be some more room to go down as we witnessed with Bank of America the other day.  Going from around $7 to $5 a share had to have been a yucky feeling to those who thought they bought in at the bottom.

I am sitting on the fence as to whether it makes sense to go long term in stocks right now.  The only reason is that like everybody else, I am waiting, waiting, waiting for something to indicate that the rise and fall of the money waves will somewhere start washing us on the shores of good news more than bad.  The media though does glom in on the bad news and you, dear reader and potential investing person, need to keep in mind that bad news sells just as much as good news.  For every headline about the economy being on the road to recovery there are more about companies laying off more people.

Earliest I think that the supply destruction might slow down?  After the earnings season in the first quarter so maybe around May might be when companies will start to show a profit on their balance sheets.  At that point, they may have lowered everybody’s expectations too low so any news will be good news.

Don’t discount the negative aspect news of war.  If things somewhere globally go haywire, that may adversely cause low stocks to go even lower.  The difference, depending on whether factories are being blown up or not, might mean that you have a great buying opportunity because the stock may bounce back in a day or in some cases right before the closing bell.   Brave sailor of finance, due your own due diligence and be careful as we sail together in the sea of holding pattern.

Keep those questions and comments coming, folks!

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Kim Isaac Greenblatt

Tags: Business, money, stock market

This entry was posted on Thursday, January 22nd, 2009 at 12:09 am and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.