You Want Charts?
In many of my posts last year, I ranted about how the market was “rallying on empty“, meaning that there was little or no fundamental basis for the market to be reaching such heady levels. Today, I feel no different but I won’t deny that the trend has been very profitable regardless of what the fundamentalists think.
I will remain cautiously optimistic … until this bubble bursts.
What bubble? Some call it an Asset bubble, others see a bubble in an artificially inflated market and fewer others call it a Hype bubble, referring to investors who have bought into “value” stocks based on the aforementioned artificially inflated market.
What artificial inflation? In spite of its “conspiracy theorist” theme, you have to check out this video as this is something we have been ranting about all of last year; the possible reason for an empty rally and probable existence of the plunge protection team.
Now onto those charts …
Although some of these charts are 6 months old, there is little doubt that the situation has improved since. I could not find the latest charts for some of these illustrations but the monthly economic data (revisions and all) have not indicated any improvement to the U.S. economy at all.
Let’s begin with the mother of all reasons why the U.S. economy is not on the road to recovery …
It is obvious that employment is in its worst state since WWII and although it looks like bottoming, is still on a downtrend and far from recovering. Analysts would have you believe that employment is a lagging indicator as the economy usually recovers before employment does. But this chart puts to rest any debate that the economy is recovering because if it was, the next few charts will tell you otherwise and correlate to this employment situation …
With the Consumer Price Index (CPI) at record high levels, how is an economy with more than 10% unemployed able to keep up with rising costs?
Obviously, businesses are unable to keep up as indicated by the chart above. This comes as no surprise because there is no way businesses can tough out a weak economy without help from the banks and the banks are not lending!
As a result, businesses close and mall occupancies fall …
As businesses suffer, more people lose their jobs …
As more people lose their jobs and stay unemployed, foreclosures continue to rise …
… and as more people lose their homes, property prices continue to fall and the demand for homes falter …
The lack of spending power amongst Americans is also evident through their consumption habits …
So what are the chances that this could be a “Jobless Recovery”?
Any recovery, it would seem from the chart above, has only just started – unlike what the government was saying six months ago – and is still a long way from being a REAL recovery.
Let’s look at where all this hype in the market is coming from …
S&P500’s earnings are back to post WWII levels which means that companies having been beating earnings on massively revised down estimates while the PE Ratio remains relatively high …
So what “valuations” are we looking at? Low valuations relative to an inflated 2000 and 1929? or High valuations relative to the historical average?
All the while, the government’s own internal “health” is poorer than ever before …
This was the state of the American Debt-to-GDP last year …
and this is the 10 year CBO projection …
And all the while, they keep printing more money …
… causing the Dollar to fall to record low levels.
It will take a brave man to tell Bond traders that the U.S. economy is on the mend …
… especially when the stock market is yielding more than Treasury Bonds …
What I will be doing is keeping a keen eye out on the latest economic numbers to see if there are any improvements to the last quarter (Q4 2009) to indicate a real sort of recovery. Earnings Season now will be my first indication of companies’ attitudes toward the current economic situation. These are numbers that don’t lie and (I hope) are not cooked by the government.
To wrap it all up, read this item on “After the Stimulus Binge, a Debt Hangover“. If memory serves me, it wasn’t that long ago that another kind of debt problem send this market into the Netherworld.
Happy Trading!
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