Zeev,
You may have done this in a past post I missed, but shouldn't you add a disclaimer every time you post higher targets -- "then, it is 'to da moon'?" I can't believe the number of "analysts" who keep saying "technicals" show where the market is headed, or "1.2 trillion on the sidelines" will move the market 30% higher if only 1/2 comes in, or "the market looks 6 months out" and so "you must get in now" because we "know" the cycle will turn then, etc. This is all utter hogwash. You must assume several things in any of these scenarios, and you know what happens when you assume? Of course, most of the talking heads and salesmen on CNBC and the press need no help in making a$$e$ out of themselves. First, you must assume there will be no more attacks in America. You must also assume that the same CEOs and CFOs that have been lying to the public and using pro-forma numbers and bookkeeping voodoo have suddenly "gotten religion" and can't tell a lie concerning where "the bottom" is or where a "turning in sales" is. They all claim this, and then CNBC parades them on by the truckload. I love the way these same companies keep taking "one-time" losses in order to doctor the books, month after month, after quarter, after quarter. How can people be so gullible to keep listening to these clowns? Then you have Federal Reserve people telling everyone that they must spend more money to be truly American. Top that off with new "rebates" to people who don't pay taxes anyway -- what a clever use of the word "rebate". The first rebate was an advance, and this rebate is a give-away. The first one did not work to "revive" the economy through spending because enough people who actually work for a living had at least enough brains to not waste the advance on more stuff they don't need when they already have too much debt. The government and Federal Reserve, not content on the American people having any less debt than themselves, have now come up with the brilliant plan to give the money to "non-workers" (I generalize here a bit), who they hope surely don't have enough brain power to resist going out and "blowing" the money on alcohol and cigarettes to "stimulate" the economy. If it were not so sad, it would be laughable! You've got the President praising companies who "don't lay off workers" simply because the country is in a crisis. This advice will only work for a short time, because the economy was in a crisis long before the attack. But, once again, if you listen to corporate/government sponsored CNBC, you absolutely "know" that the economy was on track to recover and the markets to soar if only that attack had not killed it. Never mind that PE ratios are off the charts, earnings are in decline, layoffs are mounting, housing is slowing, new jobs are not being created, the Middle East is a tinder box waiting to explode, etc., etc., etc. Ignore it all. That is the "American" thing to do right now. Eat more grapes because Rome can never fail! The sheer tripe being spewed each day is beyond belief!
So, I guess your prognostications could come true IF there are no more attacks, IF corporate America can't tell a lie, and IF th economy is not in serious trouble on its own completely separate from the attack. I say you need a disclaimer for this reason. Do you honestly think that the market will simply follow a pattern if you wake up to "there are 5 cases of smallpox in 5 cities" one morning? Or truck bombs begin to level shopping malls? Or one of dozens of other scenarios? Sure, you can dismiss this as pure pessimism and simply "be American" by ignoring sound financial advice and telling others to spend money they should not "to help the cause" (the government is doing this) or "believing" corporate America because it is "patriotic", but in the end, what is really true will dictate the results. Differences aside, Japan tried every trick in the book, just as this government, corporate, and wall street machine is doing now. Maybe I have tunnel vision, but right now, I think it more likely that you have blinders on.
I remain,
SOROS
The Coming Credit Collapse
By James Cook
Let’s set aside for a moment the impact on our economy from the recent attack. For sure it will have an effect, but whatever’s going to happen to the economy would have happened anyway. And what’s most likely going to happen to the economy is a credit collapse of a magnitude and dimension that shakes the U.S. to its very foundation. What we have done to ourselves will vastly exceed what our enemies can ever do.
The incredible array of economic sins and imbalances in the U.S. economy are without precedent. For one thing, no country has ever experienced a sharp economic downturn against the backdrop of exploding credit demand. Never have consumers borrowed so madly to fend off a reduced lifestyle, nor have businesses borrowed so aggressively to keep their doors open.
In the 1930s corporations had $2.00 in cash for every dollar of debt. Today they have a dime. By borrowing extensively to buy back their stock or running down their precious cash reserves to boost their stock prices, many companies have painted themselves into a financial corner.
Meanwhile the consumer set a borrowing record in the second quarter to pay bills and keep on consuming. But, look at these five overpowering reasons for consumers to pull in their horns:
Loss of the wealth effect and a reversal from capital gains to capital losses.
Low savings or no savings.
Debt rising to record levels.
Falling income growth.
Growing numbers of layoffs.
In spite of gross deterioration in the financial system, the credit party continues. Champagne-drinking optimists refuse to notice the sober realities of the enveloping hangover.
An unprecedented systemic problem with the U.S. economy means a severe crisis ahead. We’re not making a bunch of facts up here. We’re not standing diametrically opposite the mainstream economic forecasts and Wall Street propaganda because of wishful thinking. The facts are horrible to contemplate. The severe strains in the system won’t go away if and when the business cycle turns up. In fact, these intractable problems insist that the business cycle will turn down further and stay depressed for a long time. How depressed is the crucial question.
Profits are the main engine of a growing economy. Profits fuel spending on products and services. Profits translate into capital spending on plants and equipment. Without profits this important spending can’t take place. An economy without profits is like a human body without enough calories. Robust activity diminishes. The profits decline in the second quarter was the greatest in 21 years. Despite a record nine interest rate cuts by the Fed, this profits malaise shows no sign of improvement. Something far worse than an inventory glut, the suspected culprit, must be at work.
What is it that turned down profits and plunged all important business investment into a funk? Here’s the list. You tell me how many of these profit depressants are going to go away quickly.
The Trade Deficit. Money going out of the country doesn’t buy anything inside the country. It’s the biggest negative to profits.
Misguided profit strategies. Downsizing and restructuring on a large scale hurt all businesses. Mergers and acquisitions take the place of all-important investment spending.
Financial leveraging. Borrowing money for stock buybacks and speculation leads to weak balance sheets, inflated asset values, soaring interest obligations, record debt and shrinking cash flows.
Savings on the uptick. Apparently most of the recent tax cut was saved. A 4% savings rate (supposedly the current rate) removes $300 billion from spending and GDP. Fears and concerns among consumers translate into greater savings and become an import profit depressant, a la Japan.
Despite what you’ve heard from Wall Street, information technology and the new economy failed to bring home the bacon for the U.S. These new technologies were overrated. Our so-called economic miracle pales in comparison to the auto industry of the 1920s with its intensive capital spending that created jobs, profits and wealth. Basically today’s new economy was propelled by Wall Street euphoria, runaway money and credit expansion and the worst examples of stock speculation and overvaluation in history. This was a bubble that has now burst with a vengeance. Wall Streeters recklessly continue to advocate more of the same but which of them has been right about anything for the past 18 months? What they have engineered and continue to promote amounts to the loss of five trillion dollars. The wealth of America is evaporating before our eyes. Attempts to reinflate the bubble with additional money and credit are now offset by corporations and the public who wish to hold on to their money and restore cash balances.
We all see that bankruptcies and defaults are on the rise. It’s my view that sooner or later cascading defaults will snowball into a credit collapse as one business failure brings down another. When a critical mass of consumers who are out of work or facing income reductions are forced to postpone their credit card payments or omit their mortgage obligations, the credit implosion will spiral out of control. Then we have the worst of all economic worlds. Our outrageously exorbitant money and credit expansion has fed into the willingness of too many people to overload on debt. When all the excesses and imbalances in the economy are taken together, I don’t think any country has ever been in a worse pickle.
Today’s continued optimism in the face of the facts I have related makes a person wonder if we are on a different planet from the money managers and economic experts. But I would argue that every economist who ever existed on this earth up to and including John Maynard Keynes would agree with me when I express these grave concerns. I hope you take my argument with more than a grain of salt and don’t let the assets you have accumulated wither away. Look at what’s happened so far. Use that as a roadmap to the future. There are good times and bad times, booms and busts, lush periods and droughts, peaks and valleys, pleasure and pain, joy and sadness. We have lived through a golden age and now we are likely to see its opposite. If all the excesses of the bubble period are liquidated, it will be a financial holocaust. If you’re not apprehensive, you should be.
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