stock_creeper's  Instablog

Euro Surging Again

It’s funny how on all this talk of the Euro dissolving the Euro still keeps going up. It’s only 6/10 of a point from being at near historic highs. We’re still in an era of infinite prosperity and liquidity, if only for a few. That means nothing is too big to be bailed out. Huge surpluses from BRIC countries are subsidizing the spending at virtually 0% interest.

Euro 1.55 coming soon. There will be no debt ceiling either, as evidenced by the complacency in the bond market. Boehner wants more spending for pro-growth stuff like more wiretap, preemptive war, bank bail, and tax cuts. All of that will happen so there will be more ‘emergency measures’ to raise the ceiling until those measures become permanent. Thsat way the debt ceiling can keep getting raised in small, repeated ‘temporary’ increments like a Riemann sum without having to officially raise it.

Why Housing Doesn’t Matter

It’s widely accepted that the housing market is a barometer of overall economic health and housing not only contributed to the 2008 bear market, but that its participation is necessary for the economy to recover. Both statements are false in that bursting of the housing bubble had only a minimal impact on the economy in 2008. Evidence of this is how the stock market and profits & earnings are rebounding enormously despite weakening housing numbers. The lack of correlation between housing and economic health is evidenced by how the DJIA is just 1400 points from 14,000 even with the Home-price index at lowest point since 2006. The PE ratio of the S&P 500 is only 15 after a 100% advance from March 2009 lows. And yet housing is weak by virtually all metrics. We can deduce:

1.     Greenspan shouldn’t shoulder all of the blame 2008 bear market by creating housing bubble. The bursting of the housing bubble didn’t hurt it economy as much as believed, rather it was a sudden surge in personal savings, reduction of business spending, and overall economic slowdown.

2.     The fabled ‘home ATM’ is only a small part of business and consumer spending. Rapidly growing foreign consumption and a falling dollar is enough to offset diminished US consumer spending from falling home equity.

3.     Investors should pay little mind to housing numbers and keep buying the dips

4.     Weakening housing numbers could paradoxically help the economy by giving Bernanke a good excuse to leave rates at 0% forever. This has an added benefit for multinational by depressing the dollar.