Why Stock & Many Asset Types Will Have Difficulty Rising

There is developing a diminished incentive -- and reduced ability -- to hold assets. Commensurately, there is an increasing desire to sell for time and cash-raising reasons. This applies to stock and real estate.

The overhang of supply, along with a commensurate inability of investors to hold, may not be visible to those investors who have not intensely considered the 1930s or 1970s. Today's economic phase is not similar to those periods and will not be coaxed out of its downtrend by accepted methods developed during recent study of those periods.

Moreover, the economic phase that has been initiated during 2007-2008, and is rapidly evolving, is not similar to the 1960s or the 1980s. The crash of 1987 was not an asset valuation correction. It was a mechanical adaptation to derivative interactions followed by mass psychological rationalization.

NASDAQ, S&P, real estate markets have not yet completed their correction of the early 2000s.

If ever there were a period to not watch daily stock charts, it is today. All trends, support levels, and psychologies are broken. These must be rebuilt before an uptrend can develop.

Market forces impact owners who need cash.

Any asset that can be sold may be sold to raise cash to meet obligations. The longer the current downtrend continues, the longer the selling of higher-quality assets will continue.

The longer the current downtrend continues, the more the selling of higher-quality assets will tend to become attractive.

The quality of a specific asset can become less a reason to hold than a reason to sell when its owners need to raise cash. Potential sellers in need of cash may tend to sell their higher quality assets in order to limit asset quantity loss and ease liquidation.

This applies to all asset classes including real estate.

Financial stocks will likely fail to rise over the next years.

There will remain continued concern that nationalization will be a genuine possibility in the US and Europe. That possibility links to freezing, cutting, and suspending dividends, thereby removing value derived through stock ownership.

Macro forces will inhibit valuation increases at the micro levels.

Investors who have held and purchased stock, as well as other assets during the 2008 decline, will see less reason to hold and more reason to sell into any rally over time.

The following has been excerpted from American Thinker's C. Edmund Wright's article of January 16, 2009, entitled "Why Geithner and Rangel Matter".

Charlie Rangel. Tim Geithner. Barney "Fannie Mae" Frank. Chris "Countrywide" Dodds. Rahm Emanuel. And Barack Obama. And so on.

We have been told that these are the people who are going to lead our economy out of the Bush imposed wilderness and to the Promised Land. These are the people who will end the Republican's "culture of corruption" and "era of special interests" in Washington and clean things up. These people represent hope and change.

I think we can look at this and easily understand why the stock market is tanking. We can figure out how, for the second month in a row, the jobless report "stunned the experts." Investors and business owners do not live in the make believe world of Washington and its political gamesmanship. These people have skin in the game. These people suffer when they make bad decisions, and they are en masse deciding that to "take their ball and go home" as the only prudent decision. That's why people are dumping stocks and laying off employees.

When the people who make the rules are either too ignorant to understand their own rules or feel entitled to break them, the allure of playing is simply gone for the rest of us. Apparently, more than half the voters have no understanding of this concept. And no amount of bail-outs will change that.