The Dow Is The Canary (April 26, 2010)
. . .
“You don’t buy it.”
“I concede the Beige Book presents a rosy picture of the economy. Consumer spending is up. But the rising Dow is not a sign of economic recovery. The rising stock prices are not a function of sound economic fundamentals, they are a result of far too much free money in the hands of a small circle chasing comparatively few stocks backed by an implicit government guarantee in an economic universe without other viable investment options. The stock market is the leading economic indicator of the coming inflation.”
“They call it productivity. Companies/employers are reporting greater earnings resulting from firing more employees. However, the current price/earnings ratios are somewhat more in line with historic averages. Although there may be no one left to buy the products or use the services.”
“Inflated stock prices today, bread at a $100 a loaf in the next few years.”
“However, if there are fewer consumers with less disposable income, the economy should enter a deflationary period.”
“That seems plausible. Consumers always consume even if they don’t have money. The dislocations in the economy may not produce enough goods to meet growing demand from individuals, albeit individuals without the wherewithal in their pockets to fund their demands.”
“So there may be deflationary prices then inflationary prices?”
“Citizens will discover that the market will decline precipitously in due course leading to more now inevitable bribes/bailouts from the government for those at the top. Some say that the American people simply will not tolerate another engineered decline. What will they do if they don’t want to tolerate a decline?”
“Vote out the incumbents?”
“Or self-medicate? The economic performance this summer will significantly impact the outcome of the elections this fall. If the Wile E. Coyote Economy does not drop for the next six months and those who gave up searching for work also give up voting and drop out of the debate, the Democrats may not drop in the polls. However, there may be a bad turn particularly if the financial virus made in the USA that spread to Europe infects Europe or if the Black Plague in the Gulf of Mexico engulfs the East Coast. This could be a hot summer.”
. . .
Bumper stickers of the week:
Trust me. I’m a banker.
Trust me. I’m an investment banker.
Trust me. I’m an investment adviser.
Drill, baby, drill.