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Politics : President Barack Obama -- Ignore unavailable to you. Want to Upgrade?

To: RetiredNow who wrote (107718)	1/20/2012 2:54:57 PM
From: RetiredNow	Respond to of 149317

The Stock Ramp Is Just More Deja Vu "Insanity" Warns Morgan Stanley Morgan Stanley's Mike Wilson Insanity Wasn’t it just a year ago that we had the exact same set-up? Growth was slowing, Greece was close to default and there was unrest in Middle East. I guess one could argue China is no longer tightening policy and Europe is closer to the end of their crisis. On the other hand, earnings growth in the US is now decelerating and likely to get worse over the next several quarters. Furthermore, the political environment in the US has rarely been more charged and bipartisan than it is today. The S&P500 is trading almost exactly where it was at this time last year, but with a lower multiple. This is the direct result of higher earnings in 2011 than 2010 but with the prospect of lower growth going forward. This makes sense to me. Most investors I speak with concur with the view that growth is likely to be below trend for the next several years thanks to deleveraging and a more stringent regulatory environment. However, there is quite a bit of excitement over the probability of QE3 being implemented at some point during 2Q. Exhibit 5 shows just how excited stock investors seem to be getting over this prospect, especially in relation to their fixed income peers. But, this is almost always the case when animal spirits get going. The last time I pointed out such a divergence (October of last year), the SPX had a swift 10% correction over the proceeding 3 weeks. I have no idea whether we are likely to get such a correctly immediately, but I sure can’t rule it out and I am pretty confident you won’t be able to get out of the way unscathed. Just another reason for why I want to be paired off right now. I’d like to end this week’s note with a quote from Albert Einstein who said “Insanity is doing the same thing over and over again expecting a different outcome.” I feel like this is exactly where we are today with respect to the policy choices being made all over the world. Do we really think the result of QE3 is going to be any different than QE2? Or that the second European LTRO is going to end up resolving Europe’s solvency problems simply because the Fed is now supporting a larger effort via its open swaps line? Didn’t we learn anything from the Japanese experience of the past 20 years! I might be more on board with the program if I thought we were making real progress on the things that matter for sustainable organic growth. Unfortunately, I just don’t see it. While I am watching many things to determine if the facts are actually changing, there is one metric in particular that has to turn for me to get more constructive fundamentally. I am talking about personal income growth excluding government transfers. Until this shows some signs of life, I will remain highly skeptical that additional policy stimulus will end differently than what we have recently experienced. Exhibit 6 tells the sad story of our current plight and how this current rally will likely end. Until then, I will look forward to my next lunch with Adam Parker.