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  • Why Stocks Will Keep Going Up -What You Need to Know About the Economy [Edit or Delete]0 comments
    Jul 1, 2011 8:29 PM
    Why do stocks keep going up despite the lack of participation from mainstreet?

    1. Is downward economic mobility, more poverty, more foodstamps, surging wealth gap, and record debt compatible with a strong economy? Yes, thanks to globalization, a booming service sector, and increased consumption from high income earners and business to business services.
     
    2. Mitt Romney surging in the polls and prediction markets is good for stocks. Intrade gives him a 34% chance of winning the nomination followed by Bachman with 16%.  I'm certain that a Romney presidency would mirror that of George W. Bush with the same pro-China, pro-war, pro-market and pro-spending policies that we've grown accustomed to over the past decade.

    Romney's path to the Whitehouse is not though populism or so called 'maverick appeal' but via constant media coverage, aggressive campaigning, safe policies, and a bottomless warchest- the same playbook used by George W. Bush to win in 2000. Like Bush there is no evidence that Romney will implement any form of fiscal restraint or withdraw of foreign occupations. Bachman, on the other hand, has adopted a platform of fiscal conservativeness and troop withdraw.

    Wall st & the globalists want higher web 2.0 valuations, wider wealth gap, more spending, more preemptive war, more wiretap, more bailout, more pain at the pump, maxed out credit cards, and more leverage.  Regardless of who wins expect more of the same.
     
    3. Unemployed people do contribute to the economy by giving Bernanke a good excuse to never raise rates again. Lower rates subsequently helps multinationals fund M&A activity, buybacks, and depresses the dollar. Depressing the dollar directly benefits multinationals. Unemployed people do continue to consume, for example, by using netflix, priceline or apple products. 

    4. Furthermore, falling consumer confidence is good for the economy and stock market because pessimistic     consumers tend to be more productive at work for fear of being fired while spending habits remain unchanged despite the fall in confidence. 

    Falling home prices also bullish because it gives the fed another excuse to never raise rates again. 
     
    5. Globalization and falling dollar offsets any weakness in consumer & business spending stemming from high unemployment. This is why the S&P Retail Index (finance.yahoo.com/q/bc?s=XRT+Basic+Chart...) is at near 52 week highs even with no job creation and stagnant wages. 
     
    6. Surging living expenses for inelastic goods & services (food, gas, energy) directly helps GDP and retail sales by forcing consumers to spend on these indispensable goods. The cost of healthcare and education vastly exceeds that of inflation- a trend that won't be slowing down anytime soon.
     
    7. Winner take all economy. Small biz, main street are the losers of this economic & stock market boom. Small biz can't take advantage of super cheap borrowing costs, pricing power, and globalization that multinationals enjoy. Real wages have been stagnant for a decade while wealth gap accelerates. Meanwhile, companies like Facebook, Apple, and Google remain dominant and their founders and high level employees get richer and richer. In just two years companies like Twitter, Facebook, Linkedin , and Groupon have made millionaires and billionaires out of hundreds of people. Banks remain as hesitant as ever to lend to small biz owners unless the terms are stipulated in such a way that the borrower would have to work till he drops dead to pay off the loans for his failed business. 
     
    8. Economic policy is designed to make the rich richer because this is optimal for stock market & GDP growth. That's one reason why interest rates are never going up again - to force people on fixed income to spend more and save less hence keeping money out of the banks and circulating into the economy.
     
    9. Two-track inflation.  Up until 2001 stocks rose while commodities and living expenses were stable. Short term interest rates and long term rates were around 4-5% generating a flat yield curve. Between 2001-2008 short term interest rates were still high (remember when banks paid 4% a year lol ..those days are gone for good) and commodities, stocks and living expenses rose together. This is still one-track inflation. Oil rallied from $30 to $150 between 2000 and 2008 with gas prices and grains making similar advances. 
     
    Then came the supposed financial crisis. Everything plunged (except the dollar), but especially short term rates falling all the way to zero. Ten-year rates fell slightly to around 3%. Then came two track inflation. Despite commodities, living expenses, stocks, S&P 500 profits & earnings all going though the roof rates still remained historically low. This is not supposed to happen, but is. 
    Here's a chart illustrating how S&P 500, DBA commodities ETF, and UGA gas prices ETF have all made massive gains this year while TLT (20 year treasury) has fallen just slightly. finance.yahoo.com/q/bc?t=1y&s=TLT&am...
     
    And the 1 year still hasn't budged
     
    QE is over, but that does that mean rates are going to start going up? Don't count on it. 
     
    In contrast conventional economic theory, low rates is NOT indicative whatsoever of economic weakness, as evidenced by yet another quarter of record profits and earnings , but from BRIC surpluses depressing rates. The world is awash with so much liquidity that yields can fall even as economic growth booms -a phenomenon that hasn't been observed until only recently. This is why I'm bullish on virtually every asset class from bonds to munis because there's enough money to prop everything up. This is why Meredith Whitney was wrong and why Nicholas Taleb's black swan fund could fail

     seekingalpha.com/instablog/926530-stock_...;
     
    10. The debt binge is still sustainable. As long as there remains insatiable foreign demand for low yielding US paper there's no reason why the deficit should be a concern. That's why despite all the default hysteria the bond market remains benign; the USA is an economic powerhouse and has reserve currency status. Greece, on the other hand, is an economic weakling which is why it's yields are surging under the burden of its debt. 
     
    11. Government programs touted as 'Job creation' never work out, and never will. The census jobs were temporary. The Obama stimulus is regarded by economists, the general public, and politicians from both aisles as being an abject failure having created only a negligible amount of jobs at a great expense. Companies will only hire Americans when cost/benefit analysis models determine that hiring is necessary, not because the president is trying to 'reach out' to CEOS.
     
    We're still in the era of infinite wealth creation for some and no job creation, debt, and stagnant wages for many. Keep buying the dips. Main street's loss is Wall St's gain.
     
    Effortless money is still to be made with buy & hold with stocks & etfs such as BIDU IBM MCD AAPL GOOG UGA GLD EWZ PCLN NFL
     
     
     
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