Well, I certainly agree that markets are irrational.
<<until then with all the money looking for a place to get some kind of return, the markets continue to hold up>>
I don't think there is a lot of money looking for some place to go. The volumes in the markets have been unusually low for months. There has been sustained insider selling and practically no insider buying for well over a year. Yes, corporations are sitting on record piles of cash (over $2 trillion), and that fact has been well-publicized. Many wonder why companies that seem to have cash coming out of their ears are not creating jobs. The answer is simple: US companies are drowning in record debt-----over $7 trillion.
So really, that $2 trillion in cash is highly misleading. Actually, US companies are not broke; they would have to find $5 trillion someplace just to get to the point of being broke. Until that occurs, they are deep, deep in debt.
marketwatch.com
"According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever. That's up by $1.1 trillion since the first quarter of 2007; it's twice the level seen in the late 1990s.
The debt repayments made during the financial crisis were brief and minimal: tiny amounts, totaling about $100 billion, in the second and fourth quarters of 2009.
Central bank and Commerce Department data reveal that gross domestic debts of nonfinancial corporations now amount to 50% of GDP. That's a postwar record. In 1945, it was just 20%. Even at the credit-bubble peaks in the late 1980s and 2005-06, it was only around 45%.
The Fed data "underline the poor state of the U.S. private sector's balance sheets," reports financial analyst Andrew Smithers, who's also the author of "Wall Street Revalued: Imperfect Markets and Inept Central Bankers," and chairman of Smithers & Co. in London.
"While this is generally recognized for households," he said, "it is often denied with regard to corporations. These denials are without merit and depend on looking at cash assets and ignoring liabilities. Cash assets have risen recently, in response to the fall in inventories, but nonfinancials' corporate debt, whether measured gross or after netting off bank deposits and other interest-bearing assets, is at peak levels."
By Smithers' analysis, net leverage is nearly 50% of corporate net worth, a modern record."
Yes, the markets can and certainly have totally ignored these realities for a long time, but the day will come when the markets face facts. When that day arrives, you can bet it will not be pretty.
In my opinion, we are headed for an extended bear market, and in fact this may have begun at the end of April. The above is only one reason; there are many others.
WS |
