Everyone thinks the world is ending!

Geez, I'm typically pretty bearish, but everywhere I look is way more bearish than me...I was actually starting to get positive on the US outlook. Maybe I am just off 180 degrees...

It's like the media thinks the world is going to end because

1)china's economy may cool down a tiny bit.

2)rates may go up.

3)Iraq is a complete mess.

4)outsourcing

5)derivative exposure.

WTF? My take on these 5 things-

1)so what. cheaper oil for us. cheaper goods, too.

2)if you haven't borrowed everything you can by now, then i feel sorry for you.

3)no way bush is getting re-elected. my belief that it will be kerry in nov this has nothing to do with my own disdain for the guy or his admin. kerry will drag everyone else in to absorb some of the cost.

4)again, this is a partisan issue. legalizing immigrants and giving tax incentives to move jobs away will not last. mark my words.

5)buffet's take on derivative exposure seems valid to me, but greenspan is already cuffing mortgage lenders and greenie is typically on the conservative side. he's been directly questioned in front of congress on derivative exposure, and he does not seem very concerned. i think the problem lies more in the fact that buffet does not trade options.


just my deflationary .02

 

Media thinks the world is doing just great. Listen to CNBC they are still giddy over the stupid Google IPO which will add more supply to the markets.

Real estate continues to go up... people continue to spend.. look at retail sales. All of the big brokerage firms have a 1200+ target on the S&P.

Companies are beating earnings and raising guidance... economy is expected to grow at a nice clip.. and Ebay just hit a new all time high 3 days ago.

You can make a case for both sides of the market. Thats why we are having a trading range market. Eventually there will be some type of catalyst that will come into play and push the market into a clear direction.

People like myself are betting it will be negative.. in my opinion the 2 greatest risks are a major terrorist (chemical) attack or a massive unwinding of debt where the bond market gets ripped.. which spills into the housing sector.


--MIKE

 

I'm not bearish as for the market not yet. I consider that it is consolidation that can last until summer but that the Dow has still some leg up to 12000 and even to 16000 (of course not in straight line haha).
see http://www.elitetrader.com/vb/showthread.php?threadid=32141

All these rumors are orchestrated each time they need to push the market down for the weak hands to give up.

 

My answers..

1. I dont mind if their economy cools down but there are 2 major problems. One is that the gov. issues the loans its not so much of a supply demand type market. Which means corrupt officials are allocating money in the wrong places through bribes. In turn this means that a lot of money went to really stupid projects and pointless places that will not pan out.. which will lead to massive debt default.

Also most of the money thats building up China is coming from the USA.. and the Americans think that the Chinese people spend money like Americans. They want to flood China with mega shopping Malls and restaurants similar to that of NYC.. the problem is that all of these places will be empty because Chinese people do not have spending habits similar to those of Americans. Its a huge mistake by the American business men. Read this article http://news.yahoo.com/news?tmpl=sto...hicagotrib/fearsgrowinchinathatboomwillgobust

" In Beijing, local officials looked at a neighborhood south of Tiananmen Square and saw what they thought was a bright future: a street where gleaming glass shopping centers should stand on a newly widened boulevard. They leveled a mile-long neighborhood, casting out thousands of residents and two years ago built a new shopping center that nobody seems to need. Of 14 retail projects, 12 are empty. "

2. Rates will go up.. and the problem is that the entire recovery was mostly based on people getting things they really dont need because of the convenience of low rates. Once that stimilus is gone.. the economy will not be able to sustain itself. I would love to see GM continue selling $40k SUV's to consumers when they no longer can have an atractive finance option like 0 down and super low rates. This recovery was mostly fueled by massive debt which was mainly caused by mortgange refinancing.. which gave tons of new money to consumers. Take away this stimulus and the game is over. The situation of your average American is ridiculous. I just cant believe how much debt people are taking.. this ultimately forces me to believe in the devaluation of the Dollar.

3. Iraq is a complete mess... and I hate to admit it.. but the whole thing is a waste of American life and money. Absolutely no end in sight.. even Bush himself admits this.

4. Outsourcing is probably one of the major catalysts that makes me extremely bearish. The truth is that the US labor market no longer maintains a broad competetive edge like it once did that fueled the Go-Go 90's. Lets face it... in most cases foreigners can do exactly what we do and at a much cheaper price. Besides biotechs and some medical related fields.. we have nothing more to offer than countries like China or India. The biggest issue will be tech.. where in many cases places like India have a superior pool of skilled workers in electrical engenireering.

5. FNM and FRE are a complete joke and everyone on Wall Street knows this. If the housing bubble does bust i bet they will become the center spotlight... all we need is someone with balls of Eliot Spitzer to open up their books and they will be finished.


--MIKE

 

Yes but this has always been and only the poors and middle pay the price. The world will end when the RICH will be touched : when the bank will refuse to lend them money for their business their business will sink. It is only when Banks decide to restrict money under the pretext of killing a dangerous Bubble whereas they have created it that Business will be touched largely, sadly it is when Businessmen will want to commit suicide that the sign will be there.

 

Not exactly. Dont forget 70% of US GDP is consumer spending.. which probably makes up the middle and lower class. They have been squeezed beyond belief.

Its only a matter of time before they start blowing up and capitulating. So they wont need to buy $30k+ cars or the latest tech gadget. The US has the best marketing in the world.. and they have duped much of the consumers to continue buying crap that they dont need nor they cant afford. The main difference now is that because of easy access to money.. they can now afford all of this junk.


--MIKE

 

Some people need an Economics Lesson when it comes to understanding debt. The holding of debt is an asset.

From an astute posting by ET member Ray Bridges on another Econ Thread:

On the issue of national debt, I am amazed at how someone with Mr. Meyer’s stature can neglect to view the holding of debt as an asset. He points out the fact that foreigners support the financing of our government expenditures, but neglects to mention the fact that much of the world’s wealth is stored in a variety of government notes, and those notes make up much of the wealth of our world. Meyer fails to give debt a worthy place in the economic environment of today. Debt plays a crucial role in the growth and expansion process of the business cycle, for the issuing of debt to a variety of consumers benefits both sides of the transaction. That is how the market system works. Prices and interest rates move into balance, so that both parties are content with the trade. The consumer of debt benefits at the issuance of the credit, while the issuers reward comes by delaying consumption. The average debt load of the market participant sheds light on the extent of just how strong the next phase of the business cycle can grow, but only if we have faith in the desire of the consumer.

As to the demand for U.S. Government Debt failing to remain strong, just watch the bond market for clues on the demand for treasuries when markets get flustered. This should put your worries to rest.

 

You know, in the 70's when I was young, I thought life would go on forever and the world and its wonders would never end. Then in the 80's I started listening and heard that the would must come to an end in the 90's. The 90's came and went and the end of the world got pushed back to 2000 because that was the end of the millennium. The millennium rolled over and then I was told that our calendars are off by a few years. A few years have now come and gone and I am still here. What gives?

Well, I've read some more and listened for enlightenment. Those who know are telling me the world will end soon because we are almost out of oil, there are too many people on the planet, the crops will fail, there is war and rumor of war, the sleeping giant (China) has awakened, the world is out of resources, the oceans and rivers are polluted, the planet is warming, the planet is cooling, we are over due to be hit by a big asteroid, the huge volcanic caldron in Yosemite will explode at any time, the world is in financial crisis, Christ is coming soon, Satan is coming soon, terrorists will get nuclear weapons, a strong solar wind could strip our atmosphere from the planet, our magnetic field is about to flip, aliens are monitoring us, there is too much carbon dioxide in the atmosphere, ebola or another super virus will ravage the Earth, soon our computers will be smart enough to control us, we will suffer deadly diseases due to genetic tampering with the human genome, we are stripping the Earth of its rain forests, we are over fishing the oceans, we release too many toxins into the soil and the water, the oceans could have a huge methane belch killing all, etc. What did I leave out? I know I left something deadly out. I know this because I am still here.

 

Not sure what you left out, but that was one hell of a list. :eek:

 

One of the things not yet mentioned is the election cycle. We are typically strong into the election.

Watch the way the interest rates jumped on the rate hike rumor; people are very tapped from a debt standpoint. This will mean a harder load as rates increase. A growing percentage of mortgages have been ARMs lately; I noticed US Bank has risen their 30yr rate to 6.75%. This is going to really hurt the people who stretched recently to buy while the rates are low (ironic how that's their typical rationale for buying yet they sign an ARM).

Our currency needs to depreciate a little lower in my opinion. We are still running a high KAB; the wild card here is how the asians deal with our debt. With China and Japan being two of the largest holders of US debt, a really strong Japanese economy may reduce their incentive to prop the yen with their current fervor. A jump in domestic rates will also dramatically help the dollar.

In my opinion, we are about to hit the downside of our economic cycle. Our KAB is probably sustainable for a while longer, assuming Japan and China stick with their current policies and "pegs". I think the dollar will be strong for a while, but when the Fed tries to use monetary expansion to help ease our possible impending rececession, the dollar will drop. Since we haven't much "wiggle room" left in the monetary tank, we'll need more fiscal stimus, which will mean higher US debt. At some point, foreigners must begin to worry about the debt levels.

Waggie mentions holding debt is an asset, and, while this is very true, so is currency. However, holding marks in the 1920's would've been a bad idea. An asset isn't worth holding if the asset represents irresponsible policies.