Libertad - Thanks. You hit the nail on the head. The endless media spin and economic cheerleading does very little to change facts on the ground... Jayford - Couldn't agree more. I got into it a few weeks back with a greenhorn permabull and went down my laundry list of reasons how the economy is screwed. Not the least of which is the old tried and true "weak dollar = strong market" argument, thats been played out here a zillion times. Point being, if Europe or Japan were as strong as we thought (false hope), they'd suck up our cheap equities and Real Estate for pennies on the dollar. Euro at 100% appreciation and Yen at 30% versus USD since 2000... Where is this tidal wave of foreign support for the Dow or US RE??? Nowhere to be seen....And for the reasons you mentioned. This was a global credit boom, a global RE boom, a global commodity boom. Now its a Global Recession. How can we rationally expect the Japanese or Europeans to bail us out when most European banks are underwater from US and EU CDO? And the Japs have yet to recover from their own RE clusterf*ck circa 1990's - a crippling debacle we just stepped in ourselves?? Emerging was the driver of this recent 'boom'. Not unlike selling our body parts to organ harvesters for a quick buck. Yes, there are far too many cracks in the pot. Without sounding the alarm, I believe it will get much worse than typical recession. Here is why: We have no manufacturing. Industrialized economies recycle money locally far more than any import-based economy; through the layered myriad of component manufacturers, assemblers and resource extractors responsible for adding value to any one finished product. Instead of 20 or 25 American companies having a direct hand in building one American product, now theres 2 or 3: the importer, marketer and call center. Which ironically, was exported to India!! What America did is export its value-add overseas. We no longer make or engineer products. We market, we finance, we service and we speculate. Thats it. And when consumers can no longer afford to buy the underlying our economy is based on, we're fucked. The economy will collapse because its based on servicing discretionary consumables that only a small handful will soon be able to afford!!! This is what is meant by "house-of-cards", in every sense of the term. It gives me chills, but this is not hyperbole. Anyone who disagrees, I would love to hear your argument. What kept this charade going for the past decade is credit. We spent beyond our means, which propped a rotting a economy and all the non-industries of service and finance atop of it, that employed the Country. The era of cheap money is gone and America will get flushed out in a very bad way. Reams of layoffs. Unemployment not seen since the depression. The only tangible product Made-in-America is War. Defense. War for profit. Anyone still following my long-winded diatribe. About the Market. The market will Crash. If rates near 7%, all types of institution and hedge funds will pull out of equities en masse and dump into T-Bills and Bonds. The leading indicator here will be Fed IB's loading up on T-Bills and Bonds. Watch for it. Most funds can't beat the S&P ( ~11%, per year). When rates get within that ballpark, game over for the market. Investors will pull everything from a market that-by-then will have bled them of some 20-30% of their invested wealth. I see very bad times ahead. All Bernacke can do is juggle. Maybe keep rates at 4-5% for a long time. At that point, M3 will be doing 10% a year easy, and so along with it, commodities. All this will do is delay the inevitable. If he continues to print, the destruction of private savings will be unimaginable.
Thanks. My first thought: who values equities? What makes the IBES - or some IB analyst - worthy of your attention? If its statistical regression, like a chart, that values equities.....forget about it. We're entering unchartered waters, as many other vets remarked. Statistical models of what historical valuations "should be" moving forward, do not apply. Even being indexed at this point is dangerous. America is faltering economically and could be going down the shitter for a long while. I think it''ll be worse than Japan. If anything, wait until a crash. If rates keep climbing, wait for that crash.
First of all, fuck you. Two, I voted for Bush because I thought Kerry would have been far worse (in retrospect it's hard to imagine if that would've been true). Finally, I didn't say shit about Kerry. you're getting mad because I think unconventionally, but I know there are a lot of people out there who will agree with me on this: Americans are being heavily taxed by way of inflation. The only way to stop this tax would be for congress to reduce spending and limit it to what they collect.
Nice to rewrite history, eh? Nasdaq crash, 1929 crash ... all overbought markets. How about wheat 08? That was from $13 -> $7.5 ... overbought. 87 crash was after selling happened. Every situation is different and black swans can *not* be predicted - that is against their nature. With that said, these markets are setting up for an opportunity of a lifetime very soon. This sentiment = blood on the streets = unlevered longs will make a killing with a very low risk profile. Returns need to be risk adjusted. Just one corporate tax repeal or serious $$$ injection via new fiscal policy/stimulus could change the whole game. Benign neglect was Japan's style, but isn't ours (despite poor decisions being made sometime). ... Always enjoying taking the other side.
Fiscal injections don't get more plentiful than Fed Funds at 2%. And at these historical Rate Lows, we're already down 3,000 points. This is not a rosy picture, by any stretch. Additional liquidity pumps will only inflate energy and commodities further. Discreationary spending down the tubes. This is a classic catch-22. There is no magic bullet that can save the economy. All the excess prices and Enrons need to get flushed. Otherwise, we'll be at 250$ oil and 12$ corn, before you know it. Whose going to have money to buy plasma screens or MSFT then??? No one. Bam. Crash, either way.
You got it. The entire Banking system is built on a Gigantic Moral Hazard. American Banks own the Fed. So when they collectively take on huge losses, they turn on their printing press and bail themselves out (courtesy of the Tax Payer via runaway price inflation). Its very simple.
As long as my stocks (MOS and Visa) keep going up I'm not going to lose sleep over the imaginary financial meltdown.
The opinions of these banks are written by analysts. Now I have nothing against analysts and have known a number of them. They are self absorbed storytellers in their professional writings and like to write compelling stories that get attention. But amusingly if there is one thing they have in common its that they always tend to own personally some stock in the next disaster (Bear Stearns, REFCO, etc). Collectively they don't see real disasters coming straight at them and they imagine grand disaster that has no chance of becoming real. So if some of them see a new and greater financial meltdown coming, my advice is just turn over and go back to sleep. It ain't gunna happen - guaranteed.
Excellent Commentary, Achilles28 Achilles28 wrote... Jayford - Couldn't agree more. I got into it a few weeks back with a greenhorn permabull and went down my laundry list of reasons how the economy is screwed. Not the least of which is the old tried and true "weak dollar = strong market" argument, thats been played out here a zillion times. Point being, if Europe or Japan were as strong as we thought (false hope), they'd suck up our cheap equities and Real Estate for pennies on the dollar. Euro at 100% appreciation and Yen at 30% versus USD since 2000... Where is this tidal wave of foreign support for the Dow or US RE??? Nowhere to be seen....And for the reasons you mentioned. This was a global credit boom, a global RE boom, a global commodity boom. Now its a Global Recession. How can we rationally expect the Japanese or Europeans to bail us out when most European banks are underwater from US and EU CDO? And the Japs have yet to recover from their own RE clusterf*ck circa 1990's - a crippling debacle we just stepped in ourselves?? Emerging was the driver of this recent 'boom'. Not unlike selling our body parts to organ harvesters for a quick buck. Yes, there are far too many cracks in the pot. Without sounding the alarm, I believe it will get much worse than typical recession. Here is why: We have no manufacturing. Industrialized economies recycle money locally far more than any import-based economy; through the layered myriad of component manufacturers, assemblers and resource extractors responsible for adding value to any one finished product. Instead of 20 or 25 American companies having a direct hand in building one American product, now theres 2 or 3: the importer, marketer and call center. Which ironically, was exported to India!! What America did is export its value-add overseas. We no longer make or engineer products. We market, we finance, we service and we speculate. Thats it. And when consumers can no longer afford to buy the underlying our economy is based on, we're fucked. The economy will collapse because its based on servicing discretionary consumables that only a small handful will soon be able to afford!!! This is what is meant by "house-of-cards", in every sense of the term. It gives me chills, but this is not hyperbole. Anyone who disagrees, I would love to hear your argument. What kept this charade going for the past decade is credit. We spent beyond our means, which propped a rotting a economy and all the non-industries of service and finance atop of it, that employed the Country. The era of cheap money is gone and America will get flushed out in a very bad way. Reams of layoffs. Unemployment not seen since the depression. The only tangible product Made-in-America is War. Defense. War for profit. Anyone still following my long-winded diatribe. About the Market. The market will Crash. If rates near 7%, all types of institution and hedge funds will pull out of equities en masse and dump into T-Bills and Bonds. The leading indicator here will be Fed IB's loading up on T-Bills and Bonds. Watch for it. Most funds can't beat the S&P ( ~11%, per year). When rates get within that ballpark, game over for the market. Investors will pull everything from a market that-by-then will have bled them of some 20-30% of their invested wealth. I see very bad times ahead. All Bernacke can do is juggle. Maybe keep rates at 4-5% for a long time. At that point, M3 will be doing 10% a year easy, and so along with it, commodities. All this will do is delay the inevitable. If he continues to print, the destruction of private savings will be unimaginable. ...................................................................................................... Very good points.... Here is something else to think about..... The real problem with respect to inflation or deflation is that it does not affect everyone at the same time.... For example if everything that you had is adjusted fractionally at the same time ....then the constant can be ignored.... The buildings that have been built are built and will be there tomorrow no matter what people say they are worth.... ............................................................................................. The problem commences when legal constraints about price come into the picture..... The house sits empty on 5th Ave as bums live on the street..... The question becomes ....when will the bums say screw this and live in the empty house anyway ......