Commentary 09-06-10

I have a real problem with the euphoria that has been going on in the markets of late.  I am not a fundamental trader, but one has to look at what is going on around them in order to analyze what one sees on the screen.  I will not fighting the flow of the market, but at times one must question what one is seeing.  The housing market is not about to come back soon.  The boom last year came on the heels of an $8000 or $6500 government tax credit.  Did it really help anyone other than those that were already going to buy a home?  To get a tax credit you have to be employed and earning money and have taxes to pay in excess of $8000.  Can the government do this again? I doubt it.   What does that mean?  It means, in my opinion, that housing prices have not reached the bottom yet and foreclosures just keep on coming at a rapid pace.

Let us take a look at the employment numbers.  They jumped for joy and tossed millions into the stock market because there was an increase of 67,000 jobs.  There was no mention that the unemployment rate went from 9.5% to 9.6%.  There was no mention that the actual rate for those unemployed as well as those no longer on the rolls runs between 16% and 22%.  No one that I have seen has an actual number for that. Not to mention the underemployed.   In July and August there were about 54,000 jobs lost and in June 175,000.  To top that off, it is my understanding that there were an additional 3 million new people entering the job market.  Let us look at the other side and note that we added 650,000 jobs since the start of 2010, but that we have lost over 8 million jobs since December of 2007.

Europe is now going to add controls on their financial markets with a Systemic Risk Board.  This board will control banks, hedge funds, short selling, various financial instruments and derivatives and they are talking about establishing their own rating agencies.   They will even issue warnings on shady insurance policies.   This does nothing to solve the current sovereign debt crisis.  By drawing in their spending and trying to reduce their debt, they are taking funds out of the market place which in the long run should be good, but in the short run will have a negative impact upon growth. 

Now to the U.S.  So far this year Bernanke and the Fed have printed $1.5 trillion dollars to buy mortgage bonds, treasury bonds and government agency bonds.   While the government has been buying a lot of worthless paper the rest of the economy has been on a debt reduction binge.   Corporations are flush with cash and are cutting back upon their borrowing, banks have cut back on their lending and with the lowest mortgage rates in a generation there has been a mortgage reduction phenomena going on.  In spite of all the money printing and hoopla over 110 banks have failed this year. 

There is supposed to be no inflation.  That may be the case in the housing market and the electronic gadget market, but in the things that everyone uses on a daily basis prices are going higher.  Gasoline is at $3.19 here, health insurance costs are going up from 18% to 50% depending on your status, a peach in the market costs $1.00 and almost everything I look at is up in price.  Yes, many stores are having 50% off sales, but who is buying other than back to school items.  Parents are buying because their children have grown out of last years cloths.  How many people are there buying to expand their wardrobe?  Buying that new set of golf clubs?  And with the variation in the Yuan imports will become more expensive.  You are now just starting to see labor unions refusing to take any further cuts in benefits and asking for higher wages. 

Hate to rain on your Labor Day holiday, but I felt that someone had to say something.  Just the ramblings from an old man.

Ira