Lifted on a sea of purportedly easy money and visions of the neutering via secret ballot next month of the president 55% of likely voters surveyed by the Ragin' Cajun, James Carville in a midyear poll believed to be a socialist, it was "risk on" this week. The assets repeatedly highlighted here, from gold/silver/Brazilian real to AAPL were strong, but there's a big But.
There is a disturbing pattern. The financials are lagging. This is the dark side of the current ebullient market, which is both so different from that of 2006-7 but so similar. As in 2006-8 (first part of 2008), gold/silver/oil are surging; junk bonds have been surging for some time; yet as in 2007, the people think the economy is in a recession. The people were right, more or less, in that while the economy was allegedly booming in fall 2007 just as the stock averages were hitting all-time highs, Americans were about evenly split about whether the economy was already in recession. The people got it right. I know. I was one of those people who did not trust the economists. It was clear to me in summer 2007 that housing was in a depression, autos were in a severe recession (GM and Ford already were rumored to be in danger of failing), and therefore the domestic economy was already in deep trouble. Hey-that's about half of the domestic economy right there, counting all their related industries.
Now, Gallup shows that, on a 14-day average, self-reported discretionary spending was only $59/day, which is down by about 50% from peak levels.
Not. A. Real. Recovery.
Meanwhile, assuming there is a semi-free market for money, the collapse in the 2-year note to about 0.35% yearly and the collapse in the 5-year note to little over 1% yearly is not consistent with a stock market surge. It is, however, consistent with a domestic depression.
But not the Great Depression, either. Think Japan as the current template.
(Better Japan than Greece, that's for sure!)
How then can be that McDonald's, gold/silver/oil, IBM, etc. can surge, several of them to or near all-time highs, while the National Federation of Independent Business and numerous other surveys show a chronically weak economy and federal and state tax receipts disappoint?
Is it lunacy?
It's the rest of the world; as Mr. Carville might have added in 1992: ", stupid".
Do Messrs. Obama and Bernanke feel just a bit abashed, even humiliated, that Brazil and Peru have been buying U. S. dollars to stem the ascent of their currencies against that of the colossus of el Norte?
Or that the most recent estimate of India's economic growth rate was raised to 9% while our current and projected growth rates were lowered to low single digits?
Just wait till you start hearing of how badly our workers are treated when they go south of the border for work.
There are, however, some domestic investment opportunities in the U. S., to be discussed in the next couple of days.
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