I hope all of you are enjoying the Labor Day holiday with family and friends.  I know when this hits your inbox, I’ll be in Key West with my family.  Despite the fact that it is Labor Day, there is another holiday on my mind right now.

Last Tuesday, I made my debut on CNBC.  While I was in the studio waiting to go on the air, I started thinking about Christmas.  Two guests that were on ahead of me were discussing how deep this credit crunch is going to run.  Both thought that it would be contained to the financial sector, but I have to disagree.

All I could think about was how we have a negative savings rate in this country and now we are having a credit crunch.  The more I thought about this, the more concerned I became about what lies ahead for the financial markets.

This led me to my Christmas thoughts.  When you have a negative savings rate and now credit is harder to come by, where is the money going to come from?  It has been the consumer that has kept the economy moving over the past few years, with businesses spending less on expansion and more on stock buybacks and such.  So now the consumer can’t borrow as much and they sure as hell haven’t saved anything.  So where are they going to get money this coming shopping season?

Sure the Fed may come to the rescue with a rate cut.  But historically it takes approximately six months for a rate move to work its way into the economy.  And the Christmas shopping season starts in only three months.  So even if the Fed cuts the fed funds rate at the September 18 meeting, it might be too late to help this year.

I know the expectations for earnings are getting lowered each day, and the prices are being adjusted downward, but I am not sure they are being adjusted enough.

The bottom line is that I am very concerned about the credit crunch running much deeper into the economy than most experts think it will.  Earnings for the next earnings season may not be as affected because the credit crunch concerns didn’t really start until the end of July, so the October earnings season might not be that bad.  It is the January earnings season that concerns me.

Good luck and good trading,

Rick

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