Seeing Bears

To the Editor:

If you watch CNBC or Bloomberg for every guest who says the “bear market” is still in effect, someone else gives a contrarian view. One of these guests must be right but how do you know who. Personally, I do not believe this bear market is over, and I believe 2010’s market lows will be put in place between now and the November elections.

My three reasons are as follows:

Corporate earnings: This is a typical “buy the rumor, sell the news scenario.” In February and May the market sold off its highs right after earning season. We are seeing the same thing in August. On top of that, retail sales, which make up almost 35 percent of the economy, fell in May and June. This can’t be good for future earnings.

Budget deficits: The US budget deficit was raised to $1.4 trillion. How much is $1 trillion? Let me show you. Currently there are 535 members of Congress earning approximately $170,000 per year. One trillion dollars could pay their salaries for the next 10,400 years. Wow, that’s a lot of debt.

The consumer: According to the consumer confidence index, the average reading is 100 and 70 during a recession. Currently the Index is at 51. The consumer makes up 75 percent of our economy and every indicator is showing the US consumer is cutting back. With a dismal corporate earnings season behind us, deficits completely out of control, and the US consumer reducing spending, it hard to see how a bear market can be avoided.

Daniel M. Patti, CFP

84 South Main Street, Newtown                                August 18, 2010