Another Bloody Day: Will more selling come?

There is a huge drastic change in the psychology of the market recent – actually within the last four weeks or less.  The credit market is deteriorating because of the lack of transparency.  Banks and financials are getting hurt.  All the deals and the buyout premiums are being taken out.  But there can be worse to come.  There hasn’t been a reevaluation of stocks yet.  Yes this is yet to come.  Will the American consumer who is being slow stretched be affected?  Well the piggy bank of refinancing has finally come to an end with tighter lending standards and falling home prices.  The consumers spending the most were the same people spending the most on their homes.  When consumers stop spending, revenues go up while fixed cost are basically fixed thus profits go down.  Way down.  If PEs go up then stocks will need to go down.  Value funds will have to readjust.  Growth stocks are definitely not in favor with the lack of growth.

Did someone say recession?  Is it possible?  Some people are saying it’s possible when before it was not.  A rate cut doesn’t seem to be coming soon with the threat of inflation.  Here is the possibilities for this market.

Ok the world’s best consumer us is falling apart.  Will corporations start laying people off in foresight of this consumer spending drop.  Yes there will less money to spend and less money to spur the economy because we know that everyone in America already maxed out their credit cards.  Well what about world growth, what about world growth.  It depends on us, the world’s best consumer who isn’t so great anymore.

Why is there so much selling?  Why?  Well let’s see.  The loan funding was pulled.  Lack of liquidity in the mortgage market pushed up the rates for loan funding.  Then this pushed up rates for corporate borrowing.  Then this killed the buyout mania.  Then the catalyst for stocks started falling one by one.  Buyouts were more expensive.  Stock buybacks are more expensive.  Borrowing cost for corporations are more expensive.  So it’s a huge problem.  So now you have stocks dropping and people demanding for redemptions of their money because they are scared.  I’m scared.  I sold everything today because the market is dropping on low volume.  Flight to quality it’s called.  So now funds will need to sell everything as the redemptions come and you know what some people aren’t sticking with these funds who are supposed to beat the market and so heavily invested.  So there will be fund closures not because of subprime but because of the regular market dynamics.  This is not good for the world of capitalism.

It would be nice to just wait it out until all the rates reset and the banks figure out what is going on with the liquidity situation because money is disappearing every single day.  I say go with something save until you see huge selling at huge volume.  Like is the world coming to an end volume.  We need something to say that everything is ok.  Wait it out folks.