Unhappy Thoughts From Windsor

by JDH on May 16, 2009

Two weeks ago I expounded on the theory that you should sell in May and go away. A week ago that strategy was looking, at best, premature, as the Dow was up 4.41%, and the S&P 500 was up 5.89%. This week was a down week, so sell in May and go away is looking better. The Dow was down 3.57%, and the S&P 500 was down 4.99%, so the gains of two weeks ago were all but completely given back this week.

Obviously I am of the belief that down is more likely than up over the next few weeks (and months). Others agree; see for example this commentary from Danielle Park.

Some random thoughts this week:

First, the US Dollar appears to be breaking down again, as shown in this US Dollar Index Chart. Gold tends to rise as the U.S. dollar weakens, which longer term is good for gold. In the short term, who knows.

Second, the markets appear to be making a series of lower highs, which isn’t good.

We had a double top around the 1,000 level in the S&P 500 back in October-November 2008, and then another lower peak of around 950 in January. Neither of those peaks have been exceeded. What’s next, a peak of 800 in the summer? 700? Who knows, but I’m not optimistic.

Why I’m not optimistic

I suspect that many of you are tired of reading my doom and gloom. You would like me to tell you that everything is fixed, and all will be better. Unfortunately, I just can’t do that.

I am writing to you today from Windsor, Ontario, where I have spent the last day. Windsor is across the river from Detroit, Michigan. You can drive from downtown Windsor to the Joe Louis arena in Detroit in a matter of minutes (depending on how long you get stopped at the border). By power boat it’s about a four minute trip. The skyline of Windsor is dominated by the skyline of Detroit, which is dominated by the world headquarters of General Motors. It is a tall and beautiful building.

Unfortunately the news today is about the 1,000 dealers GM is closing, and the 789 dealers Chrysler is closing. That means tens of thousands of jobs will be gone in a matter of a month or two.

News reports of foreclosures (apparently the U.S. government has 50,000 properties under foreclosure that they can’t sell) keep increasing.

Even worse, I spoke to over dozen people in Windsor, and the feeling today is one of despondence and despair. Fifty year old men who held a well paying job at a company for 20 years are now unemployed, surviving on unemployment insurance. This financial stress is causing an increasing number of marriages to break up. I predict the divorce statistics will show a massive increase over the next year or two.

(As an aside, I question the sanity of Windsor residents. Apparently city workers are on strike, so city properties are now overgrown with grass and weeds. Taxi drivers are also on strike. Everyone in the automotive sector is getting laid off, and people with jobs are on strike for more money! No wonder this world is in a mess).

The number of personal bankruptcies in Canada are at record levels, and they continue to increase at an ever faster rate.

The U.S. government’s tax revenues are way down, and deficit projections continue to be revised upward.

The point, dear readers, is that despite the talk of “green shoots” you may read about in the media can be more accurately described as “dead shots”. The economy is not improving; it’s getting worse, and getting worse at an ever increasing rate. Ever bad news report of dealerships closing and foreclosures increasing is yet another shot that renders another segment of the economy dead. It’s not pretty.

I apologize for being the bearer of bad news, but that’s how I see it.

(And yes, apparently Mr. Dines issued an Interim Warning Bulletin on Friday predicting slight turbulence but good times ahead. I’m not sure what he’s looking at, but I disagree).

Given this sorry state of affairs, I am holding cash, and I will probably liquidate further some of my gold holdings this week to lock in my gains, because further market weakness will depress all stocks, as we learned last fall. Once the IMF confirms they are selling some of their gold, an announcement that may happen in June, the price of gold will probably take a hit, and I want to have lots of cash on hand to do some serious buying.

So, for now, I hold cash, and I wait.

I don’t have a great internet connection where I sit at the moment, so I won’t post any charts. I’ll leave it to each of you to examine the fundamentals, and the technicals, to decide if my outlook is overly bearish.

Monday is a holiday in Ontario (Victoria Day) so the Toronto exchange will be closed, so we will see on Tuesday how the world in Canada progresses.

I will enjoy the long weekend, despite the negative outlook. Thanks for reading, and we’ll see if I’m in a more positive frame of mind next week.