HP/MP restored! But you're still hungry.

Unanswered Question
I’m not convinced the recession is over, but for arguments sake lets assume it is. Why didn’t the stock market bottom lower than it did? Given the S&P 500 at 666 and assuming, generously, $60 earnings equals a PE of 10. That’s a much higher bottom than it’s bottomed before.


I believe there just isn’t enough pain out there. Or maybe more appropriately the pain isn’t being distributed properly. The bottom 17% of the US that is un or underemployed is receiving the majority of the pain. Of that 17% many of them are collecting generous unemployment benefits. Another good portion of them may have sizable savings to fall back on. This whole situation needs to be given more time before some serious pain is felt.

What are we fighting for?
How much of this stimulus money is being spent on something worth sustaining? Sustaining the finance industry in its current state is a complete waste of resources (time, oil). It’s becoming more and more obvious that the finance industry is a giant leach on the rest of the economy by sucking money out of it while increasing, not decreasing, the costs of capital. Sustaining the majority of the auto industry is a disappointment. I could understand sustaining and auto industry where everyone could afford to drive an Acura TL, but most of the cars produced are garbage that merely get you from point A to point B. Is that really what a driving experience is about? What’s the point of sustaining a farming industry that pays farmers to not produce? What’s the point of sustaining an airline industry that, after the first 3 hours that includes driving to the airport and going through security, after delays, takes 6 hours for a 3 hour plane ride? What's the point of sustaining state and local governments where politicians and high ranking or tenured emergency workers make 5 times as much as an average government worker but don’t add anywhere near 5 times the value, if any value. I hate for this whole rant to be viewed as a healthcare rant, but I’ll end by saying with all those problems the worst problem of all is that the US can’t even take care of its own people, medically. I hate to imagine how many children or young adults will never become Doctors and Engineers because either they themselves became ill or because someone in their family became ill and the financial problems associated with it prevented them from moving forward.

Chain reaction of events that leads to blatantly obvious...

Thoughts

• Much sooner than later the supply of treasury bonds will be too big for the current group of bond investors to buy and the natural way to entice other investors to buy them will be for the rates to go up. However, the Fed can simply step in themselves to buy the bonds or they could do some unnatural things like make the interest on treasuries tax free. Lately the Fed is doing all kinds of unnatural things to prevent rates from going up (like all these bailouts, without the bailouts rates would be much much higher right now) so it’s very hard to say if the rates will actually go up.
  

A list of things that the Government has done to prevent (delay) a Depression

Thoughts

• How many large companies (even entire industries), either by terms of revenue or employees, are on the brink of bankruptcy? It’s amazing that they’ve lasted this long.
• The writing is on the wall for the telecom industry. The future involves buying a device that has a broadband connection and using a program on that device to make calls over the broadband connection. All you buy from the phone company is the broadband connection, if that.
• The euphoric market action reminds me of the infamous Chuck Prince quote “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” FT July 2007. It should be no surprise to anyone that things are looking like 2007 again (although the liquidity is coming from the government), implying that the “herd” has already forgotten what happened next. Most people in the government and the investment industry are breathing a major sigh of relief due to this bear market rally. This is precisely the time when a Minsky Moment is most likely occur.

Reviewing The Previous 6 Months Forecast and Updating it for the Next 6 Months

There isn’t much point to having a forecast if you don’t monitor it and acknowledge when you’re wrong. Half way through the year this is where things stand:

• Original Forecast: I think the yields on long treasury bonds will continue to rise even though the Fed’s are buying.
  
  
  
  • That has happened. The 10 year treasury currently stands a 3.54%. I think it will continue to increase over the next six months. China, Pensions, and Individual Investors simply don’t have the money to buy all the treasuries. And of course now that the stock market is going up Pensions and Individual Investors are looking to take more risk.