Knoxville Area Economy Heading Down

It’s been a bad week for business in the Knoxville area to say the least.  Here are some headlines from just this past week:

Goody’s shutting doors after 55 years in business (800 jobs lost)

Sea Ray plant closing (575 jobs lost)

Officials ‘in shock’ as Alcoa announces layoff of 450 (450 jobs lost)

ImagePoint to sell business units (450 jobs lost)

Jewelry Television starts new layoffs (unknown – at least 90 jobs lost, rumors say up to 250)

That’s at least 2365 jobs lost this week.  There are gonna be some long lines at the unemployment office on Monday!

The national news isn’t any better.  The headlines today read:

Worst year for jobs since ’45 (CNN)  and Job losses hit 2.6 million as layoff pain deepens (AP) and Jobless Rate Hits 7.2%, a 16-Year High (NY Times).

Now, someone please tell me just how in the hell Standard and Poors is still forecasting earnings for the S&P 500 of $81.80 for 2009?  That’s $16 HIGHER than the 2008 earnings!  I know 2008 wasn’t a great year, but lets face it – the layoffs didn’t really start until the 4th quarter of 08.  Well over 1 million jobs were lost in November and December alone, and 2.6 million were lost in the entire year.

So who does Standard and Poors think is going to be buying enough “stuff” to drive earnings higher next year?  What are they smoking?  I’ll make a prediction – 2009 earnings for the S&P 500 will be about 1/2 of what they were in 2008.

I bring all of this bad news up in order to show why I think stock prices are still too high.  Yes, stocks are about 35% cheaper than last year, but investors are always looking ahead.  Stocks today are priced based on those 2009 earnings estimates.  When those earnings start coming in below those estimates – look out below!

The DJIA closed at 8599 today, and the S&P 500 closed at 890.  My best guess (and it’s only a guess) is that the DJIA will drop another 40% or so to around 5000 sometime in 2009. The S&P 500 will go as low as 500.

Because the government insists on printing money like Zimbabwe, the dollar will lose value and we’re eventually going to get some high inflation – as in 15 to 25% annual inflation.  When inflation takes off, the earnings will appear to skyrocket – but they’ll be flat or even lower when adjusted for inflation.  In other words, I don’t think stock will give decent long term returns for quite awhile.

There will be rallies, and you can make money in stocks by playing these rallies, but the long term trend is still down.  My advice is to buy gold and silver.  This is gonna get ugly.

gk

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