MONDAY, OCTOBER 20, 2008
UP AND DOWN WALL STREET
It Isn't Over
By ALAN ABELSON

The recession, the credit crunch, the housing collapse and the break market have not run their course. Buffett: great but not infallible.

THERE ARE, IT HAS LONG BEEN AN ARTICLE OF FAITH, no atheists in foxholes. And now, thanks to the remarkable events of the past few weeks, one might confidently attest, there aren't any capitalists in them, either.

For when the going gets tough, the tough in commerce, industry and particularly finance get going -- fast as their corporate jets will carry them to Washington, begging to be rescued.

Rescued from what? you might well ask. Why from their own folly, of course. Those stalwart stewards of the private sector have undergone a most extraordinary conversion, from the unshakable conviction that government is the problem to the wondrous epiphany that government is the solution.

Now, we don't want to get too picayune or prim. The guys and gals who run our great corporations have never been shy about hitting up the public purse for a little something, whether in the form of tax breaks or contracts or even subsidies. But this time is different (to use a phrase certain to evoke guffaws, but, just this once, happens to be true) in both scale and circumstances.

On the first score, in responding to pleas, particularly from banks and their kin, Uncle Sam is pulling out as many stops as he can. It's hard to get a decent handle on what this enormous effort adds up to since it seems to grow daily by leaps and bounds and because it has assumed so many different guises, from purchasing or guaranteeing billions worth of wasting assets to massive loans and outright investment. (Which makes you wonder whether the powers-that-be keep discovering new problems or they have only the foggiest notion of what they're doing.)

But the sum is incontestably staggering, likely approaching a couple of trillion dollars and counting. And if you toss in the capital transfusions that the French, Germans, Brits et al. are also pumping into the wobbly global financial system, the already burgeoning total swells to numbers not dreamed of in your worst nightmares, something like $3 trillion.

The hope obviously is that in the fullness of time (a nice precise span that ranges anywhere from a year to an eternity) when this still-gathering storm blows itself out, the bulk of that monetary lifeline will wind up back in the public coffers. Miracles do happen.

If you are one of those trusting souls who think the taxpayers will come through unscathed and with something to show for having put their money at risk besides grudging gratitude, we've got a piece of property with killer views and no neighbors that you can have for a song. Did we neglect to mention it's in lovely, downtown Chernobyl?

What makes the circumstances the improvident lenders have gotten themselves into so special is the virtual shutdown of credit, which, for better or worse and right now for worse, is the lifeblood of our economy. It undeniably cried out for quick and dirty remedial action before the economy followed the stock market into the abyss.

But for some strange reason we don't find it entirely reassuring that the very same people charged with foreseeing and forestalling the credit disaster and who so miserably failed to do so -- Paulson and Bernanke somehow leap to mind -- are entrusted with the formidable task of repairing the damage. Mark it down to our being an incurable malcontent.

The damage is huge and mounting. Merrill Lynch's David Rosenberg estimates our credit losses so far weigh in at $600 billion and he reckons that before the crisis breathes its last, that formidable figure will balloon by between $1 trillion and $1.5 trillion.

Like a house beginning to sag dangerously after the underpinnings begin to give way, the economy is cracking across a wide front as the collapse of credit takes its inexorable toll. The great consumer spending binge, which for decades has been a mighty economic spur, is over. Consumer confidence plunged to 57.5 this month from 70.3 in September, the biggest drop and the lowest level since the University of Michigan launched its sentiment index back in 1978.

More tangible evidence that Jane and John Q. are really feeling the pain and hunkering down in earnest, was the sharp decline in September retail sales to a three-year low. Nothing short of horrendous is the latest bulletins on housing. Starts of single-family homes in September plummeted 12% to still another 26-year nadir. And building permits, a precursor for homebuilding, skidded 8.3% to the lowest level since November 1981. And factory chimneys across a broad swath of industries have started to emit dust instead of smoke.

Those chronic optimists, who have become a bit more shy about trilling their joyous notes in recent months, shrug off the downpour of dismal data as "old news". Old, shmold, it hurts just the same, and-you can bank on it-there's plenty more where that came from.

INVESTORS, PERVERSE LOT THAT THEY often are, decided last week the time was ripe to emerge from their funk. In doing so, they thumbed their noses at the rush of negative dispatches from the economic front as well as other normally discouraging items. Such as:

Powerful fresh evidence of the slumping economy exclusively reported by Bloomberg that Louanna, a Las Vegas stripper who in good months took in as much as $30,000, made a mere $6,000 in September. Talk about bare markets!

Or the depressing disclosure that Joe the Plumber, who enjoyed his 15 minutes of Waholic fame after being prominently featured in last week's presidential debate was really Sam the Plumber; wasn't legally a plumber; had a tax lien on his house; likely would have had trouble coughing up the dough for the plumbing company he claimed he wanted to buy; and, in any case, needn't have lost any sleep worrying about earning enough to warrant a bigger bite under Obama's soak-the-rich proposal.

Offsetting such ordinarily insuperable deterrents to bullish impulses were, first and foremost, perhaps, the market was due -- make that overdue -- for a decent bounce after the terrible pummeling of recent months that dropped the leading indexes to roughly (and very roughly) 40% of their peaks a year ago. Bear markets, as you must be tired of hearing, are invariably interrupted by powerful rallies, rallies that last for more than a wink and can retrace as much as half the ground lost.

The second big spur was the precipitous break in the price of oil, a heck of a lot worse than we ever imagined it would be. The spectacular swoon was part and parcel of the great retreat in commodities generally, triggered by unmistakable signs that the festering woes of the economy and the pinched condition of the consumer were leaving their mark on demand. The panic to dump petro futures was aggravated by the credit crunch and, more specifically, necessitous selling by hedge funds and other heavily-margined investors.

And last but not least what helped fire up investor optimism (briefly, anyway) was an op-ed piece on Friday in the New York Times by Warren Buffett, in which he announced he has been busily buying stocks and the good old American kind, to boot, plans to keep doing so long as the price stays right and exhorted investors to follow his lead.

As always, Buffett was folksy in his explanation of what prompts his bullishness ("Be fearful when others are greedy and be greedy when others are fearful.") He sprinkled his advice with some obvious caveats and cautioned that he hasn't any idea what the market will do in the short term -- a month or even a year from now -- but he's confident that it will turn up before sentiment or the economy does. In any case, most major companies "will be setting new profit records five, 10 and 20 years from now."

And he's quite emphatic that the investor who has been sitting with cash and calmly watching the carnage should lose no time in piling into stocks. "If you wait for the robins," he warns "spring will be over."

We needn't go through the obligatory obeisance to Buffett's investment prowess and peerless common sense. We think he's great. And sure, we believe the country will survive and prosper in the future. No argument most stock prices are down sharply. But we don't agree this is the time to dive headlong into the market.

For one thing, Buffett can afford to be patient as long as he chooses. Most investors don't have that luxury. For another, the economy is in the early stage of unraveling and we don't think the market decline has discounted the havoc this unraveling may wreak by a long shot.

As to the shining prospects he summons up for the long term, they're not apt to help us all that much if tomorrow's troubles prove as harsh as we suspect they will. Then, too, as another wise man, John Maynard Keynes, famously observed, in the long run we're all dead.

Most of all, Buffett despite his long experience and savvy hasn't run into a crisis quite like this one because, pure and simple, it has no true precedent. That alone anyone should give anyone with fewer resources than Buffett, intellectually and otherwise, pause. Contrary to what he's saying, we can't remember anything that deserves to be called a bull market that had to be caught early and it certainly wasn't true of the last two we've enjoyed.

As to his allusion to robins in the spring -- a nice play on it's the early bird that catches the worm -- as someone has noted, it's the second mouse that gets the cheese.

http://online.barrons.com/article/SB122 ... nd&page=sp