Nightmare on American Streets

Today the markets rose violently in what was assuredly a long overdue relief rally. Whether you've been bearish or bullish, today's move probably did little to change your overall stance, nor should it have surprised you given the massive carnage we've seen year-to-date. It may seem like a truism, but in the last few weeks many forgot that markets don't go down [or up] in a straight line.

Regardless of whether you think today's action portends a sustained rally, it's important to remember that the average American is going to feel worse before he/she feels better.

If you're like me, you've begun to see loved ones falling prey to the economic downdraft. Too many smart, hard-working people are losing their jobs right now, and for the life of me I struggle to see how we're going to recreate these jobs anytime soon. The kinds of companies making these layoffs aren't doing so lightly; to think they're going to reverse course and start hiring again belies logic, at least as far as I can interpret the tea leaves.

On days like today, we start hearing the pundits remind us that "the markets discount the end of recessions months in advance." Great. But does anyone reading this REALLY think we're six months away from brighter days?

If you do, then I'm wondering if you've seen the 2009 MetLife Study of the American Dream?

I hadn't seen the study until my friend Mark [on Twitter] made mention of it today.

I implore you to read through the 38-page survey to understand just how perilously close we are to far harder times. There are a great many data points worth pondering in the survey, but two, in particular, illustrate the severity of this economic environment:

IF EMPLOYED: If you were to lose your job, for how long could you afford to be out of work and still meet your financial obligations including monthly expenses?

• Less than 2 weeks -- 28%
• 2 weeks to a month -- 22%
• 2 to 3 months -- 22%
• 4 to 6 months -- 14%
• 7 months to a year -- 5%
• More than a year -- 10%

How much do you trust the U.S. financial system? By U.S. financial system we mean the financial institutions, banks, financial markets, and the regulatory system in the United States.

• Trust -- 45%
• Do Not Trust -- 55%

Now consider that this survey was conducted in early January, and what's transpired in the subsequent months.

So maybe we've seen "the bottom", that's not for me to say. I've long been on record as saying that trying to predict the exact bottom [or top] is a fool's errand. Unless you're a talking head paid more for what you say on TV than what you do for your clients, I just can't see why anyone would try to claim they have any idea if we've seen the bottom or not. The key is to stay nimble, stay humble, and protect those who count on you to protect them. Don't let Freddy Krueger invade YOUR American Dream, I certainly won't.

Disclaimer: At the time of writing, neither the author nor the firms affiliated with the author maintained a position, long or short, in the publicly traded companies mentioned or any related instruments. The author and the firm reserve the right to alter their investment positions at any time in the future. The content on this site is provided as general information only and should not be taken as investment advice. Content should not serve in any way as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author. Any action taken as a result of information or analysis on this blog is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Comments

[Jason]

Thanks for contributing Susan. I agree, that's why we need to be mindful of the DURATION of this transition. We can't rationally correct 2 generations of behavior in a matter of months, regardless of the velocity of the financial losses we incur. People need to accept that many of the consequences are permanent, and adjust accordingly.

We're a great nation, and I have faith that we can excel again, but not without [unfortunately] more pain first.

[Susan Kuhn Frost]

Yes, I think self-employment (for good or for bad) will skyrocket coming out of the recession. Also downsizing of lifestyles. Harder times are ahead, no question.

But it is more the adjustment to change that hurts so much, and is harder to take as you get more established (and have responsibilities, illnesses, etc.)

We have two tasks:

accepting our financial losses with grace (after discharging all the righteous anger that needs to be expressed), and

finding *within ourselves* and *in the company of others* a new way to live. A tall order when the rug of your life has been pulled out from under you -- but that is the challenge we have been given.

That's the only realistic recession-proof approach to this crisis, in my view.

[Jason]

The short answer is, "yes." Dennis, I've been saying for some time that one of the problems exacerbating this tsunami is the generational aspect. An entire generation of workers/earners have been conditioned to believe their personal wealth always goes higher, that it's an inalienable right to own property, and that recessions are short and shallow.

Company managements are no different. They don't know how to react to SUSTAINED and PROLONGED economic uncertainty.

Sad, but true.

[Dennis Howlett]

But all I am seeing is mindless 20% across the board cuts with almost zero imagination thrown into the management mix. Have we trained our people so poorly that they can't think outside any of the boxes?