Loading ...By: Great Iota
We are up over 40% from March’s lows on what seems like an endless summer rally. Question on every traders mind is how much longer this recovery can last. Jim Cramer recent shows have been hinting for traders to take some profits off the table. Fast Money crew is all giggly skeptics over the economy and also been hinting to take profits. Dennis Kneale has been gloating every day on the air, calling out realists on the internet as anti Americans bloggers on his Blog You skits. I guess as long as the market goes up, the smirk will remain on his face. Larry Kudlow is back to spewing his free market capitalism is the best path to prosperity “saying” in addition to his green shoots BS (never mind bailout nation). But no matter how much they are shoving optimism down my through, a little think called common sense in my mind won’t let me swallow it. Let me break down the reality for you and explain why I’m not optimistic about the economy…
Many news reporters keep trumpeting that new unemployment claims have begun to decline and continuing claims are falling. But arrogance about only 585 THOUSAND people losing their job in a month is just ridiculous. Considering the only reason why continuous claims barely fell is because of the unfortunates who ran out of unemployment insurance. Evidence that the end is not near for the unemployment head wind is the government’s estimation of unemployment reaching 11% in the coming months. We all know that the government numbers are ALWAYS best case scenario. Besides, when 11% is reach, the true unemployment will be closer to 20%.
Other pump monkeys point to better than expected earnings as a fundamental reason for this recent bull market rally. The truth that the estimates were on average revised down 15% just a few months ago. Most companies are bringing in about 40% of the revenue they did a year ago (when the recession had already started) and yet the revenue are still dropping. Yet, you pump monkeys want me to get a hard on from an earning season that was fueled by job cuts and reduction of capital expenditures, get real.
The housing heads (HH, people who believe that RE values only goes up) are starting to post again with confidence. They point to the increasing home sales as a sign of the bottoming of the economy. Sadly, the majority of those sales come from foreclosures and the buyers are the same flippers who helped create the economic mess in the first place. All around me however evidence is mounting of more people about to lose their homes. This Christmas, Santa will be bringing the bankers a whole new set of fresh jingle mail.
As consumer spending fall and savings rate increase, the GDP will fall again sometime in 2010 after one or two positive numbers. We may very well see a positive GDP number by next quarter from a buildup in inventory and bail out spending. Considering that the economic came to a total stand still, how can GDP not increase by the end of this year?
But, what troubles me the most however is that none of the issues which caused this economic collapse have been resolved. Let me remind you that it was fraudulent lending, lobbying, corruption, greed and manipulation that caused this mess in the first place. In fact, one can argue that things have only gotten worst. It is evident to me that government is now sponsoring fraud, corruption, manipulation and greed. Example, banks reporting stronger profit does not make me feel better about the economy. Considering when they are not required to mark down the billions worth of toxic assets on their books. Add the fact that government used tax payer money to buy toxic assets off of privileged banks and or insuring them at a 100% face value through AIG just angers me. These unethical institutes have been rewarded for their bad behavior and performance by government. Then they turn around and have the balls to give themselves billions in bonuses? They should be HANGED! Considering commercial real estate debacle is just around the corner, maybe there is hope that they will be hanged! Nothing has changed in terms of changing the behavior that got us into this mess. Any good problem solver will point to bad behavior as a root cause to this economic depression.
Oh, and what of Kudlow’s saying, about free market capitalism. How was bailing out the auto industry even possible in our USA? We are pissing on the very foundation of free market capitalism by choosing which companies fail and which prosper. The handing out of $4,500 for clunkers to restart the auto industry is another stupid unfair idea. Bailing out failed corporations will not heal our economy. On the contrary, it will only prolong the pain as those that are healthy and well run will have to share the limited revenue with those that are government sponsored.
Stocks are already overpriced with most companies trading at future P/E of 25 and present P/E of 50+. This means that for every 100 dollars you invest in the company, the company will turn around and make 4 dollars in the future and 2 today! This absolutely sucks considering that most aren’t giving out dividends so you will never see those 4 dollars. The talk of a V shaped recovery only strokes fear in my heart because I realize that it is inflationary policies that have driven the recovery. Mathematically that means this V shape recovery is ONLY true if the inflation is also V shaped. Considering the trillions that Obama has already burdened the future of America with in only 6 months, inflation seems like a sure bet. Besides, V shaped recoveries in the past has always been led by a strong recovery in purchasing power and housing affordability. This is the first that is purely driven by the devaluation of the dollar and global printing of money supply.
My advice is simple, diversify!!!! I would spread between 25% emerging markets and currencies, 25% foreclosures, 25% fixed assets and 25% liquid assets (if stocks keep your fingers on the keyboard!). This recession and recent bull market rally mimics that of the Great Depression. I believe that we will be in a depression by 2011 because none of the bad behavior that has caused this mess has been addressed. Make sure to pack guns, ammo, water and other essentials just in case all hell breaks loose and the dollar goes in freefall.
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