Saturday, May 8, 2010

Wishing the Times Were NOT So Interesting

The non-permabears I follow who were bearish in 2008 and perhaps 2007 and bullish for most or all of the up-move in stocks, are growling again. This blog has been growling as well for at least 2 weeks and has pointed out for months that stocks are fundamentally overvalued at almost record levels by two different measures, "q" and cyclically-adjusted P/E. Now that systemic contagion occurred with the famous meltdown last week, yours truly simply does not want to be in the U. S. equity markets. ETFs that own gold and foreign currencies are OK still, though some of them hit air pockets in the sell-off as well.

Charts tell the tale. The move up from the 2009 low was lengthy but the angle of the ascent was much weaker than the angle of the descent. If stocks were undervalued, they would laugh at Greek debt problems.

Given our wildly over-financialized economy, falling stocks will have an adverse feedback effect on the real economy. This is what happens when the powers that be try to revive "animal spirits" by printing money.

The problems we have with financial and monetary policy are worse than the excessive debt loads carried at all levels of society. They include lies such as those to Social Security recipients that it's your money, you paid in, you earned it, etc., disguising the pay-as-you-go nature of the scheme. We now have another lie in Obamacare, which passed due to almost certainly fraudulent assumptions such as that the Congressionally-mandated major cuts in Medicare physician reimbursement will finally occur and the pseudo-fraudulent tactic of providing years of tax increases before the costs really kick in.

Most of the country sees through the charade but can do nothing The time for real financial reform was a year ago, when Big Finance was on its knees. Instead Obama focused on remaking the U. S. health care system years from now. What a genius! Let the fire smolder while getting architectural plans for a major extension to the house. Helping Big Finance get on its feet was an essential part of the strategy that guaranteed that real reform would not occur.

The current Greek tragedy is small beer compared to what could come in the New World. Short-term, though, stocks are oversold. But they are too high. Treasuries may be over-bought. But there is no reported net inflation. Thus yields may arguable be too high. Interesting times, to say the least.

Copyright (C) Long Lake LLC 2010

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