The overall and underlying strength in this market has to respected. There is definitely a strong bid out there for equities. We are seeing a better bid for equities even in the face of weaker crude. Earlier we had weaker equities and stronger bids in Treasuries and USD, that has subsided. Equities have pared back losses at mid day.
I am not drinking the cool aid, but this green shoots doctrine is slowly gaining traction even in the bear camp. I think its crap, but what I think is just an opinion. An opinion and 2 bucks get you on the subway.
You may say that more bears need to become bulls to see a market reversal, but that can and will happen, but equities just might see 10K before that.
At the moment many are seeing 2%-4% GDP growth for 2010. That is not happening in this current consumer environment. This is not my opinion, its a fact.
Cash For clunkers was a huge hit, as some 700K cars were sold under this program. The rebate was like a down payment, and it worked. Give Obama credit here. Now we are seeing Cash for Washing Machines. No doubt that the availability of government rebate checks will stimulate demand for these products as well. The market is trading like the government will just keep issuing checks to consumers forcing them to upgrade appliances and goods. Of course this cant go on forever, but the market opinion which is the one that matters, feels this way.
I will be watching car sales over the next few months to see if this program has any stickiness. I am tending to believe that the government is just stealing from future consumption, and that its all just temporary. Demand will eventually fall flat, but don't tell that to Mr. Market.
It looks to me that Obama, Geithner, and Bernanke are not going to let the economy fall flat on its face. They will spend, spend, and spend more to give consumers a reason to keep consuming. The total opposite of a sane economy. But in the end, do these three guys have anything to say where the economy will eventually settle in? The economy runs rampant, its too big of a machine. In the end, the economy is a lot like the stock market. It will do what its going to do.
Did I even mention that if the economy dips in the 2ND half of this year or first half of next year, Obama Stimulus 2 will be drawn up and put into law? Congress will quickly approve it because after all its mid term election time.
So for the time being there is a bid out there. The market believes that Cash for Auto Clunkers has worked. But when does it end? When do the training wheels get taken off?
Whats Next after Cash For Washing Machines?
-Cash For Plasma's?
-Cash For Sofa's?
-Cash For Lawn Mowers?
-Cash For Computers?
-Cash For Hand Me Downs'
-Cash For Hookers?
-Cash For Houses?
-Cash For Boats?
-Cash For Time Shares?
How much more can be done? Where and when does sanity come to play when talking about fiscal and monetary policy?
Then again the market is thinking, the government has already backstopped and guaranteed bank loan losses up into the trillions, and they have issued trillions more in Treasuries to finance the stimulus. What makes you so sure they won't keep printing tens of trillions more to keep it going. After a while the numbers get numbing and people just stop caring about the law of large numbers.
You live long enough and you realize how the game is played. That is the great thing about waking up in the morning and learning new things about yourself and how life really works.
The market has become entirely Binary in nature. Its like a lottery ticket. You buy in and make serious money, or you can lose it all. This is not the way the stock market should work, but that's where we are at the moment.
I am not resigned to the long side yet. This just may be the top for equities. But the prevailing idea that I get from watching and reading the tape is the following:
Obama is not going to stop with Cash For Clunkers, especially now that it has worked. Hundreds of Billions is no longer a problem when you have already hundreds of Trillions at stake.
Nice Post.
ReplyDeleteIsn't Cash for Hookers how it works now?
ReplyDeleteAnyway, this is supply side economics crap at its worst, the way these guys see it is this: offer rebates, people will buy regardless if they can, companies produce inventory and keep Main Street America employed, people have more money to buy other crap.
If they had simply spent the original amount bailing out AIG and given it to the Taxpayer instead we would have spent the economy back into shape OR would have paid off our debts to the banks, shoring up their balance sheets that way. If the consumer is unemployed and worried about not being able to make future payments, we'll never get anywhere long term.