Wednesday, May 26, 2010

Government Lies and Investing

Calculated Risk has a nice summary of the CBO's analysis of the "stimulus" bill. Allegedly this has helped us.

However, this would appear to be about the most bogus of a series of bogus gov't analyses. How anyone can try to separate the ARRA effects on the economy from all the Fed and Federal machinations is difficult to see. In addition, not all GDP is the same. Productivity enhancements are one things, repaving functional roads another.

The crowding out phenomenon of Federal spending replacing private spending is another unmeasurable effect. When ARRA was passed, the prediction was for a peak unemployment rate of 7.0%. Is it not possible, or more than possible, that businesspeople saw the government lurch back to the interventionist, tax-raising policies of Hoover and FDR and held back on investing just as they did all through the '30s?

The U. S. Government is almost "all in" with the real economy. Total debt to revenue is very large. Unpayable private debts and obligations, and mismarking of assets are going to have to be reconciled, the sooner the better. But don't hold your breath.

It is likely that more and more we will see bank-like multinationals such as Apple and Microsoft be able to issue debt at rates equal to or better than AAA sovereigns, with common stocks offering greater yields than 2-5 year Treasuries.

Meanwhile the WSJ is out with an article saying that gold is $5000 per ounce from a bubble valuation, just as India is finding gold too expensive to import and as Abu Dhabi is pictured as rolling out a gold-dispensing ATM and gold funds such as CEF and PHYS are buying more and more physical metal-- which appears easy enough to acquire. Gold may be just a bit too popular here, but chart-followers will be buying it. With growth rolling over, the jewelry-related demand for gold will be harmed.

No easy choices in a world increasingly suffering from too much financialization.

Copyright (C) Long Lake LLC 2010

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