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April 02, 2009 | By: Andy Abraham |
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As GM Goes, So Goes The Nation, The famous remark by Charles Wilson is as appropriate now as it was in 1953. Charles Wilson declared before Congress that "what was good for the country was good for GM and vice versa." Does GM’s (GM) rise to power and decline towards insolvency parallel the rise and fall of the US? GM’s market cap reached approx $50 billion in 2000. Currently its market capitalization dropped below $1 billion to levels last seen during the 1920’s.
Virtually all car makers (even Toyota (TM)) suffered sales declines reaching 36% or more compared to March 2008. Throughout the US sales totaled 857,735 cars and light trucks, down 37% from 2008. The good news though is that it is up from 688,909 vehicles sold in February and was the highest total since September. February’s sales were down 41% from a year earlier. Is this enough to keep the whole US auto business from going down the drain? As GM goes, so does the Nation????
Time will tell, but as Nassim Taleb states in the Black Swan: Expect the Unexpected. So many are calling a bottom of this economic abyss. This is one of the greatest problems with Bear markets and their rallies. They instill false hope and quickly take investors' money. More capital has been lost trying to catch the bottom. This bearish signal confirmed by the general consensus among “Gurus” was that a bottom was in.
Can the stock market really fall any further? Too many don’t believe it can happen. The stock market fell in the Great Depression almost 90%. Just look at the Nasdaq in the 2002 period.
Again it is anyone’s guess, but from a technical standpoint there exists great weakness. On March 30 from a technical analysis standpoint a very significant day, a proverbial 90 percent down-day. This is an extremely negative technical sign. It’s not flawless but makes technicians concerned. A 9 to 1 up/down day is when the volume of rising stocks on the NYSE is nine times the volume of falling stocks. It is called momentum thrust, from Martin Zweig in his book “Winning on Wall Street.”
The question is will we test the recent lows and take them out?
If these lows are surpassed the bear market will be re-confirmed, and quite possibly strengthen in velocity. It is obvious that we will see greater unemployment and the economy will worsen. With the Fed spending money more than a shopaholic what is one to do?
Simple…Stay flexible. Do not even think about picking up bargain stocks (unless they are Gold Stocks). Diversify your currencies, have at a minimum of 5% of your net worth in Gold. Bear in mind as much as it seems everyone thinks gold will go to thousands of dollars.. it might fall. Anything can happen, but you are purchasing an insurance policy.
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