Hello Pezz, <<We have seen 1400 NAZ so time <<to buy blindly, without fear and regret.>> ?>>
... no, because we got here by liquidity flood and borrowing deluge, perfectly set up for an even greater fall.
The problem, believing that we know the Script does not make it easier for us to act out the Play. The following excerpt describes my ponderings, KastelCo's dilemma, Energyplay's discussions, and your goings-on nicely:
Message 19032066
Q: Why won't the pickup in the economy be sustainable?
A: All the stimulus will make a difference. But the first round of stimulus only lasted a quarter, and I am worried that may happen again. Unemployment is still a weak spot. If we do get a booming quarter as I expect, there's the risk that rates might go up. Or the dollar will continue to collapse. In either case, the boom won't last.
Q: And the boom is driven by consumers continuing to spend?
A: They've been selectively doing that. Mostly in autos and certainly in housing. Mortgage refis and mortgage applications have been at new all-time highs. That's the Fed's position, really: make cash trash. People don't know what to do about it. A year or so ago, there were some things to do because bond yields were high and housing was booming. Now the bond yields have gone away. Short-term rates are certainly going to go away. They may cut them another half-percentage point. After fees and all, you are getting zero on money-market funds. So where does that money go? Auto sales really have stalled out, but the incentives are dramatic. When people get the reduction in their withholding and a check in the mail, that may be just enough to kick auto sales up again. Housing is still booming.
Q: What's your take on the housing market?
A: There are pockets of bubble. But it's not like the stock-market bubble. It's not even close. If there's another run here, and we put another whole layer of housing boom on top of the mountain we have, that might be very risky. I do think there is a mortgage-debt bubble now. People say it's not a problem because rates are low and housing prices are going up. That is all true. But still the debt has got to be paid. If housing stalls or interest rates go up, the mortgage-debt bubble becomes a really big problem.
That is the Catch-22 the economy is in. We've got this $32 trillion debt bubble out there, and it is as risky as can be. And, yet, rates are plunging, so everything looks manageable. It is true we've had 2.4 million bankruptcies filed since the economy started up in the fourth quarter of 2001. But, with rates down at these levels, we are managing. If somehow the Fed succeeds this time and things heat up again, interest rates will start up. The debt service will be enormous and that will put us right back to where we are now. That is the problem. If the Fed doesn't pull this off, and they don't trash cash and they don't force people to go out and spend their last dollar, or borrow their last dollar, then you are looking at deflation. And that is terrible.
Q: Somehow then, they have to manage in this little sweet spot for quite a while.
A: Right. If they heat things up, it is bad and if they don't heat things up, it is worse. They have clearly chosen to try to heat things up. You've got an election next year and they have a good shot at it. My guess is we'll have a great quarter, maybe a little longer than a quarter, then rates go up and it will end almost immediately. There is not a lot of pent-up demand. All the pent-up demand is coming from driving rates lower and lower and lower.
The other side of that, the other big secular risk I see -- and it all ties together -- is that our exports are exactly what they were back in 1997. This either means our goods are not competitive or the dollar is way overvalued. It is probably a little bit of both. We had a productivity jump, though I am not convinced it is as good as the numbers show. Given that productivity jump, our goods should be competitive, and they are not. We definitely needed to see the dollar come down, but it needs to come down carefully and slowly. If foreigners understood our policy is what I think it is, that is, making cash trash, why would they keep their $3 trillion in this country? At the point they realize this, this nice decline in the dollar all of a sudden becomes tremendously bad.
Q: So how do you respond to a cyclical bull market within a secular bear market? Are you bearish or bullish?
A: As a trader, I'm long and I'm bullish. We might get another 10%, maybe more. The question becomes how do you know when the falling dollar turns from a positive to a negative? It becomes negative when it starts impacting the bond market. Given the dollar situation, given the $32 trillion in debt, I don't think the bond market needs to go up anymore. But it needs to behave. It can't start tanking. What will end this rally is either the tape deteriorating or the bond market starting to really go down.
Q: And you're trading in and out of small-cap growth stocks?
A: Yes, mostly tech and biotech stocks. Every week since we became pro-Nasdaq we read -- often in Barron's -- that tech is back in a bubble. It is unnerving, it seems like there is a tech stock every day that has a problem, including IBM recently. It is very hard to sit here but that's where the leadership is.
Chugs, Jay |
