Too Little, Too Late

Too little, too late has the motto for the market over the past few weeks in response to the Fed/Treasury/Government reaction to the still-developing crisis. The market has been in virtual free-fall for a week, to the dismay of news organizations and talking heads across the wide array of media available for consumption.

Remember, fear sells, in more ways than one. The markets are currently selling out of fear, and as long as the VIX continues to spike, the bears will be enjoying the ride down. As for the news organizations, they love it just as much. It's a horror movie, only money is what is being spilled before us, rather than blood. Our eyes and brains are drawn to dramatic headlines, and that spells ratings for the networks. Suddenly, the average American consumer feels compelled to educate him/herself on the state of the financial union. Words like depression are now being tossed around, where once all we heard was recession.

Remember...a quarter ago, the official data was saying that we weren't officially in a recession yet. The accuracy of that data is debatable, as we all know that while numbers don't lie, the methods that produce and analyze them can be manipulated. While it's almost unanimously agreed upon by the most economists that we are in a recession, the fact is that credit crises are as old as time (or at least the Industrial Revolution).

Given that, calls for a depression are significantly over-dramatized. Demand for raw materials is shrinking, which is the first domino to fall, generally. However, with many countries subsidizing farming and banking simultaneously, those two dominoes will be propped up for the time being, leaving the bizarre, yet preferable alternative of deflation to cope with. Companies will see profits shrink, especially those with exposure to industries that are clearly on their last legs. American cars are the big group that I'm placing in this category. For proof, look no further than the downgrade of GM today. It's hard to imagine them competing in the new world, given all that they have done to crush growth and innovation within the automotive industry.

More money will have to be drained from the system, without a doubt. But there's a saying that when the blood runs in the streets...well, you probably know the rest.