The market has dropped so fast that relative to normal conditions it appears oversold

Market Psychology

Billionaire Warren Buffett, whose Berkshire Hathaway Inc. posted its worst results ever in 2008, said the economy “has fallen off a cliff” and that efforts to stimulate recovery may lead to inflation much higher than Jimmy Carter's in the 1970s. “We are doing things now that are potentially very inflationary,” he said. “Patriotic Americans will realize this is a war,” he said.

Buffett said yesterday that Americans are fearful, confused and changing their buying habits, which is showing up as losses at Berkshire’s operating units. Berkshire’s shares have lost almost half their value in the past year as the bear market dragged down financial assets and the recession put pressure on profit from the company’s more than 70 operating businesses. While the recession will end and future generations will once again eventually live better than their parents, the economy “can’t turn around on a dime.” Obama continues trashing the American free market and capitalist system. It is quite possible that the economy will slide lower until Americans throw the socialists out of Congress in 2011.

At this time we have no indication that the market could form a new bottom anytime soon but economists are now saying the administration's actions are causing damage that could take five years to unwind. Creating make work government paid jobs and mortgage bailouts reduces the incentive of Americans to work productively or act responsibly while impoverishing the middle class that earns their living with productive work. It creates an incentive for wealthy Americans like Warren Buffett to avoid taxes altogether and invest in commodities and other tax shelters that appreciate with inflation but do not create income until sold much later when needed, and which unfortunately only hedge against government spending/waste and do not create private sector jobs. An army of government ditch diggers, street sweepers, and tree planters is no more productive than a real army of soldiers protecting against terrorism, and a lot worse for the work ethic and the psychology of the American people and economic markets.

Market Outlook
That all leads to the general expectation that the market bottom will be about 40% to 50 % lower. The market has dropped so fast that relative to normal conditions it appears oversold.

Asian stocks were mixed last night with Shanghai up 1.9%, Japan down 0.4%, India down about 2%, and Hong Kong was up about 3%.

European markets are up in the range between 1.2% to 1.8% mid way through their day anticipating a higher American market today.

American market futures are currently up about 1.5%, two hours before the market opens.