Right now, with everyone so pessimistic, is the best time to be optimistic. There’s $1.6 trillion extra dollars lying around in the banks. Corporate America has an extra $2 trillion and there’s untold trillions in pension funds, retirement accounts, etc that are completely in cash. ALL of that money will eventually hit the economy. Any business started now that is halfway good will get their hands on that money.
Rail traffic is up! What does this mean? It means people are shipping commodities all over the country. Steel, oil, food, etc. Which means companies are about to start building things, which means companies are seeing demand pick up so they are getting ready to restock inventories, which are at lows. This indicator is almost never talked about in the media outlets. All they talk about is a beach resort in Europe called Greece which has nothing to do with us. - Hotel occupancy is up. What does this mean? It means business people are traveling again. They are traveling because they are selling something. They don’t travel to sell without companies asking for those sales, putting out proposal requests, etc. Things are moving.Smith also makes the same observance, albeit in a more pessimistic tone:
- Look at the statistics for fedex.com (using a site like compete.com). It’s up. It slipped a little when manufacturing dropped 15% in the summer in Japan because of the Earthquake but now it’s back up. This means things are being shipped. Goods are being sold. This doesn’t mean the economic statistics will be good for last quarter. It means it will be good for NEXT quarter.
- Housing starts up huge. HUGE. The biggest since 2006. That means people will get hired again to BUILD houses. That’s a huge part of our economy.
- Earnings are killing it. Intel is the bellwether for all technology. Technology has driven the market (for better or for worse) for fifteen years. Intel is killing it. This means people are buying computers and phones. Which means businesses are expanding. AAPL, one of the fastest growing companies, trades for just 8 times forward earnings and has $116 billion cash in the banks. These companies aren’t going bankrupt and demand is not going down for their products.
And let’s forget all about the basic economic statistics. Google is making cars that drive around on highways without drivers. MIT scientists are working on quantum computers. Every day there’s more evidence on how to diagnose and cure various cancers.
There are five basic arguments in favor of a "real thing" rally that runs higher for months to come: 1. Stocks almost always rally in November-December, and end in positive territory in the 3rd year of the presidential cycle (2011)The last two points are not accurate. Europe is anything but solved (implicit money printing and bailouts aren't announced but most likely assumed, the IMF is already strapping up) and China is like a dangerously inflating balloon attached to a helium tank with the release nozzle still set on high. Smith acknowledges this:
2. September data in the U.S. was mildly positive, fears of recession have faded
3. Corporations like Google and Catepillar are posting blow-out earnings
4. Europe is finally solving its debt crisis in a comprehensive fashion
5. China is still growing and thus is still the tugboat pulling the global economy ahead
Question: if China's growing so wonderfully, then why isn't it own stock market soaring? Perhaps the data supporting the official story of 8-9% growth (as usual) is more "perception management" than reality. If it was real, then why aren't Chinese stocks soaring along with other global markets? Once again, Bulls have to explain this disconnect; ignoring it is not an option for any risk-conscious investor.The answer is that China's stock market was heavily correlated with CBoC money printing:
If the E.U. solves its debt problems by effectually transferring bad bank debt to the sovereign balance sheets of Germany, France, Finland, et al., then taxpayers will see their incomes significantly reduced by austerity and higher taxes, in both debtor and "savior" nations.
Incomes and GDP are already declining in the weaker EU nations which have supported Germany's export-dependent economy by importing billions of euros of goods from Germany. What happens to German exports in Europe as its customers' economies contract?
Question: how can lower incomes, and thus lower sales and lower profits, possibly be supportive of higher stock market valuations? There is no free lunch; the hundreds of billions, and possibly trillions, of euros needed to save the banks and bondholders from losses will come out of the pockets of taxpayers and recipients of State/government payments. That necessarily means those taxpayers/recipients will have less income and thus less money to spend. More government revenue will be devoted to interest payments, and so less will be available to transfer to citizens.Smith neglects to mention that ECB money printing ultimately flows to the big banks first and is then used to bid up the stock market. Of course there is no free lunch, that's why inflation, malinvestments, and market distortions occur with artificially low credit and central bank monetary policy.
Though the Economic Cycle Research Institute declared the U.S. is falling into recession yesterday, other indicators are saying the opposite. This holiday season will be very revealing to the true direction of the U.S. economy as long as Europe and China don't melt down first. Thankfully with my part time retail stocking job (temporary till I get a full time job) I have an upfront view of consumer sentiment.
It's been slowly building, but it looks like Governor Corbett bit the bullet yesterday:
Like I wrote back in July, this is a bad maneuver and the bankruptcy which Harrisburg's City Council tried to pursue which would have forced bondholders to take the hit they deserve for throwing money at an undeserving city was the right option. State takeovers of a city and municipality are never a good thing as local, and more accountable, government loses control to bureaucrats even further away from the problem. Like Europe where the PIIGS could declare bankruptcy and get the pain over and done with, Harrisburg's troubles will only be prolonged with Corbett's latest lust for power.HARRISBURG, Pa. — Gov. Tom Corbett launched a state takeover of the heavily indebted capital city on Monday by declaring a fiscal emergency in Harrisburg — a move viewed as the state’s most aggressive intervention yet into the affairs of a Pennsylvania city and one that raises new legal questions.
Corbett, a Republican, made the declaration four days after signing a law that grants him the ability to take unprecedented control over much of Harrisburg’s finances, including the ability to use the city’s money to ensure that government continues to operate services, issue paychecks to employees and make pension and debt payments.
While watching MSNBC this morning, this creepy campaign ad from Herman Cain made it rounds:
What in God's name is this? It's unbelievable that this is an actual campaign ad. Cain's smile at the end is definitely the type of thing that keeps children up at night. Good thing it's Halloween season.
I will end with some great news as Robert Wenzel over at EPJ has announced he is starting the "Robert Wenzel Radio Show." This is gonna be great!
Update- As the global currency race to the bottom continues, the Bank of Japan has stepped up its efforts to screw over the public:
Case in point: the Nikkei just reported that the BOJ "will discuss additional monetary easing measures to help blunt the mighty yen's impact on the economy when its policy board convenes for a meeting Thursday." Specifically, the BOJ may (read) will, expand the existing 50 TRN yen asset-purchase program by 5 TRN yen, and also may consider the purchase of bonds of more than two-year maturity, thus expanding scope of program and converting it into Japan's own Operation Twist.Citi's Steve Englander knows what's up:
"Eurozone weakness has also generated indications that policy will be eased elsewhere (even if not in Europe). Policymakers in the US, UK and elsewhere are using the euro crisis as cover to ease policy. For example, the FRBNY's Dudley yesterday characterized even the improved US numbers as disappointing and pointed to further measures if growth did not improve. Chinese growth targets and policy maker comments imply that measures might be taken if there is any sign of slowing. The BoE has already expanded it QE program. At a minimum the comments are suggesting that the policymakers are willing to take aggressive action to offset any weakness.
If you can't hit it, try a bigger target. That, at least, is the latest cry from some economists as the Federal Reserve falls well short on one side of its dual mandate: maximum employment.
A growing number of proponents are pushing for the Fed to replace its employment and inflation targets with a single, simpler one. The one being touted is a level of nominal gross domestic product: GDP without stripping out inflation.
Such a move would trigger even more aggressive monetary policy to stimulate the ailing U.S. economy. Goldman Sachs chief economist Jan Hatzius, who has endorsed this target, estimates the economy's current shortfall relative to its long-run nominal GDP growth rate stood at about 10% as of the second quarter. By his estimates, the quickest way to close this gap, or to get the economy back on the path it was prior to the Great Recession, would be for the Fed to roughly double its balance sheet to $5 trillion via more quantitative easing and keep interest rates on hold through at least 2016.The "target NGDP" strategy has been gaining prominence lately, especially with Keynesian fools who think such a statistical measure can really be achieved by money printers with limited knowledge. But as Pater Tenerbrarum points out in this great post, such policy is wishful (really naive and stupid, but I am trying to be nice) thinking:
..this is the main – and insurmountable – problem central planners face in a nutshell. It is not possible to even collect, never mind correctly interpret the 'plethora of data' and bring them into context with a 'variety of scenarios' in such a manner that the 'correct policy' for a correctly foreseen scenario ends up being picked
The blind faith that a mathematical construct can actually be used to determine how much monetary pumping there should be is entirely misguided. How does Evans (a Fed governor Tenerbrarum is critiquing) know that – given the lack of a crystal ball which he admitted to earlier in his speech – he actually interprets the economic situation correctly? Even if he did so, it would not follow from this that more monetary pumping can 'fix' the economy.Also another sign of an economic recovery in the works in the U.S. was revealed in this speech by Dallas Fed President Richard Fisher:
Even surveys of small businesses—for example, the U.S. Chamber of Commerce’s survey of companies with less than $25 million in sales and fewer than 500 employees conducted in July, or the National Federation of Independent Business survey of September—indicate that fewer than 10 percent of small enterprises (which employ half of the private sector’s workers) are having problems accessing credit.Expansionary credit from Bernanke is here, more inflation won't be far behind.
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