The US stock market was down almost 10% today at the worst of the lows. A move that was propelled by programmed trading gone awry and fear that the fundamentals are falling out of place. Is this the beginning of the next leg down in a double dip recession?
Weak global macroeconomic outlook
As I mentioned in my recent US economic outlook article, there are a lot of headwinds that the US economy is facing. Now the rest of the world is adding in to the negativity with a European sovereign debt crisis, a Chinese real estate bubble beginning to burst and as a result a global crisis of confidence.
Here at home we have our own myriad of problems we are confronting. Commercial and residential real estate are facing a lot of negative forces. Commercial properties are seeing increased vacancies, a looming refinancing of debt and residential properties are increasing in defaults and foreclosures.
We also face massive unemployment, banks that are still insolvent and a government that is so indebted that that our future ability to borrow and spend beyond our means is being called in to question.
The only thing that’s certain is uncertainty
As these deflationary forces begin to rock the markets our central bank is already out of ammunition to curb the downward spiral. We have in place zero percent interest rate policy, a wide open Fed lending window and very loose repo standards. In addition, FASB suspended the mark-to-market requirement in April, 2009 thus helping this rally continue to propel itself on light volume and hot air.
The only hope is that this massively fraudulent stock market recovery can continue on the manipulated computerized trading that has rocketed it skyward since about this time last year. Of course, that is to say, if we can ignore that the very same trading platform completely failed us today. The uncertainty that this sell off leaves in its wake is enormous.
