Terrible Day For Dow Jones

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.

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2 Comments

Filed under Economy, Oil, Stocks

2 Responses to Terrible Day For Dow Jones

  1. This an unfortunate mix of economic circumstances. High unemployment, weak dollar, rising food and oil prices. Even if the U.S. has not officially entered a recession, most people feel as if it has. That sentiment is well founded and equally (if not more) important than any one indicator.

  2. Indeed, the confounding mix of economic circumstances has tied the hands of the Fed.

    While pumping more money in the past may ease the credit crunch and helped the industry stand up on its feet faster, soaring inflation has prevented the use of cheap leverage.

    Printing more money and decreasing interest rates comes at the price of rising commodities.

    Recession is here, that is for sure. How the stock market performs over the next week will be interesting.

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