Commerce Goes Off The Cliff

October 24th may mark the day that the modern economic and financial crisis peaks.  It is so vicious this morning that all futures trading had to be stopped as electronic firewalls were breached.   Listening to the talking head experts they are still proclaiming a turnaround but you have to begin to wonder how much of this is more of these experts covering positions. 

One commenter on the longest running business network is being blatantly honest.  He continues to comment this morning that in the last thirty days most of his sources show demand falling off incredibly.  We talk to our suppliers and customers on a daily basis and all of our suppliers are telling us it has gotten very slow very quickly.  Some items will still continue to sell, promotional pens for one should continue to do very well as the price point befits the market.  Digital photo frames and other products will still have a market on the business side.   From the consumer standpoint stores like Costco should continue to do well or at least better than average. 

There is still talk of a jaw dropping rally.  It is difficult to believe anything is sustained with the world economy heading rapidly into a deep recession if not depression.  How many times in equity market history have we seen a substantial recovery during an economic downturn?  Are experts giving out this information just to soothe themselves or to facilitate the liquidation of their positions?  Each time they tell the public the bottom is near we have a day like today where it really appears a total collapse is about to occur.

Another topic being left on the back burner is the situation in the credit markets.  It is finally spilling from Wall Street to Main Street.   The tightening of credit between institutions is now resulting in the reduction or elimination of credit lines on the consumer side.  This can trigger a tsunami of rate increases and credit score decreases as credit card companies chase the balance down.  If you are unfamiliar with that term it literally means you owe $2,000 on a $5,000 limit that your bank reduces to $2,100.  You pay it down $200 and they reduce your limit $200 always keeping you close to your limit which hammers your score.  This in turn is seen by your other creditors as unseemly and they may raise rates or lower limits only furthering the cascade.  Any talk of a rebound needs to be weighed against the fact that billions of dollars in consumer spending is being eliminated on a weekly basis.  To those on Wall Street or on the TV giving us advice that are comfortable in their multi hundred thousand a year jobs there is no basic understanding of what is really happening.  The effects are catastrophic which is why oil demand fell 4.6% again despite sharp drops in oil and gas.  People are losing the ability to finance the economy incredibly rapidly and nobody seems to be paying much attention.  The engine that powered this entire economy the last decade was credit.  At first institutions stopped lending to one another which still had little effect in real terms on Wall Street.  Starting about a month ago the first few consumer lenders began more aggressively cutting limits.  It has now spread to most all lenders and is accelerating as they curtail lines prior to the busy holiday season.

We all hope for a recovery later in the day today to the markets, if it ends up down 500+ points the psychological effects will probably continue to hammer the markets lower next week.  If that happens the initial stages of the holiday buying season will be a disaster and that will seal the fate of the world economy.  There is really nothing left for the Government to do as they have exhausted all of their potential interventions in what history may view as plugging the leaks in the financial ship with chewing gum.