If you look at the Dow Jones yesterday, it seems like the sky has fallen.
Oil rises $10.75 to $138.54, jobless rates spike to 5.5% as compared to April’s 5% (biggest one-month surge in over 20 years), consumer debt jumps to $8.9 billion, AIG gets investigated by SEC while other blue-chips fell like nine-pins.
If these are not bad news, I don’t know what is. Not surprisingly, Dow Jones came down 394.64 (or 3.1%) to close at 12,209.81, its biggest one-day decline since the subprime mortgage crisis in February 2007.
Standard & Poor’s 500 index and the Nasdaq composite were not spared either, both shedding around 3%. More shocking is the dollar’s decline which led to a renewed interest in dollar-traded commodities, especially crude oil. Its increase was the biggest single-day price gain since record-keeping began in 1983.
The economy is really in bad shape and a recession is unavoidable. My worst fears lies in a situation of a free-falling greenback while oil peaks at $200 a barrel, consumers will not have the spending power or are not inclined to spend, factories then cut back on production due to declining sales and uncleared inventories, followed by retrenching of workers.
Left to its own devices, this vicious cycle will drag many businesses and workers into the dumps and is a tipping point for a long and painful depression.
At this point of time, the American leadership is important in showing to the world that it can get its economy back in order. The motto of the story is to rescue the dollar.
More analysis soon, till tomorrow.