Going up

OK, sure there may be some more panic, its not going to be a one-way street, it never is (linear thinking is misplaced in the markets). But, be assured, the US stock market is going up. Big time (& don’t forget your risk management folks). Do not listen to the tin hats and those who profit by spreading fear (sometimes the profit is to their ego, sometimes in page hits & the advertising revenue generated, so beware of ‘free’ pundits who are ‘just trying to help’).

OK. Let’s take a tour of some of the writings of those with their heads screwed on, not screwed up.

The Bonddad blog, Pricing a Collapse That Isn’t There
http://bonddad.blogspot.com/2011/08/pricing-collapse-that-isnt-there.html

Rates are now incredibly cheap and the money supply is expanding. In short, there is money to lend at very cheap rates.

Second, it’s hard to imagine a collapse without a massive drop in real estate. However, the housing market is already in a multi-decade low, meaning a collapse is not in the cards.

Manufacturing has taken a hit over the last few months… However … Asia is still growing smartly. Cheaper oil will lower shipping costs, making US production that much more attractive. The supply chain disruptions caused by the Japanese earthquake are now being solved.

the above chart tells me that US businesses are already staffed to the bone and have very little more to cut while still keeping the doors open.

Credit spreads for corporations are relatively tight now. In 2008 spreads blew out to historic levels.
In 2008 companies were raising capital every chance they had. Today corporations are buying back stock.
In 2008 there were systemic issues after Lehman Brothers collapsed. The ECB seems to have Europe under control for the time being. There has yet to be a Lehman Brothers.
Corporations are wildly profitable right now. In late 2008, when the collapse occurred profits had already imploded.
There are far fewer over leveraged corporations today.
While it certainly feels like there are forced liquidations occurring it does not seem like it is on the same scale as 2008.

The bottom line is while the underlying data is weak, it’s not crashing and shows no signs of collapse, massive stress or even turning over in a significant way. The numbers are showing an economy fluctuating right around 0% growth, with a slight positive bias. But, again, I think the markets are pricing in a recession or collapse that just isn’t in the data right now.

Califia Beach Pundit: The real meaning of today’s FOMC announcement
http://scottgrannis.blogspot.com/2011/08/real-meaning-of-todays-fomc.html

Although weakening money demand and stimulating borrowing and leveraging is not necessarily a good thing for the dollar (understandably it has fallen since the announcement), it is not necessarily a bad thing for equities. Corporate profits have been stellar, and earnings yields are pushing 8%, so borrowing money at almost-zero to buy equities is a license to print money.

Today’s FOMC announcement was one of the most convincing ways to encourage people all over the world to spend their dollars and borrow more that I can imagine.

These quotes are from blogs where the authors do not have an axe to grind. Just solid research and analysis from people with trading/investment backgrounds who have been around the traps long enough to know.

By all means, read the tin hats if you prefer. A while back I read a great book from Marc Faber. Really well written, really compelling. But written with an agenda. It set me back a decade. Stupid me.

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