*** So much ahead of us! Strange slump, strange recovery...
*** Insiders still getting out...
*** Still hot... Mars... dead people... farmers... Mogambo... and more!
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We have so much to look forward to!
The real bear market in stocks hasn't happened yet. Before it is over, stocks will sell for P/Es of 6-8... the Dow will fall to 3,000 or so... and you'll be able to buy the entire Dow for a single ounce of gold.
Neither has the bust in refinancing. It's begun... but it has a long way to go. Refinancings are down sharply... but when it is over, almost no one will refinance anything.
Nor has the total collapse of the dollar and the bond market happened yet. Eventually, the dollar will probably fall below 1.5 to the euro... bond yields will reach double digits.
And the real recession is probably still ahead of us, too...
The nation has been in a slump for 20 months, we're told. But such an odd slump it has been. Jobs were lost. Stocks went down; some crashed. The newspapers reported the sad news... and commentators went around with long faces. But if times were tough, the lumpen didn't seem to notice; consumers just kept spending money... and debt just kept growing.
As far as they were concerned, it was like a funeral with a punchbowl, but no stiff; so they might as well enjoy themselves.
Since 1994, mortgage debt doubled to $9 trillion. Total debt almost doubled, to $32.5 trillion. And, of course, that doesn't include the shortfall in federal revenues... estimated at up to $44 trillion.
The big numbers don't bother us. For every debit there is a credit on the other side of the ledger. We expect both sides to disappear at once. And won't that be something to see!
Not to worry, says the New York Times. "Business spending helps offset lag in refinancing," explains last Friday's headline.
Ah... everyone, including us, has worried what would happen when the refi boom ended. How would the consumer economy grow when consumers run out of money?
The NY Times thinks it has the answer - the spending would come from business. But business spending is as big a fraud as the slump. Here's the juicy twist; you'll like this:
According to Stephen Roach, most business spending is concentrated on buying computers and peripherals... and more than 80% of it is not spending at all - but make-believe spending implied by falling prices! If a company spends $10 on a gizmo that is 5 times as powerful as the one he might have bought a few years ago, the government treats it as though he had spent $50! Deflation produces inflation, get it? We're sure the gods are chuckling. Falling prices in the technology sector now lead to overstated growth numbers!!
The inflated numbers then get factored into the nation's GDP, which was said to rise at a 2.6% pace in the 2nd quarter. This, by the way, was only half the rate of typical GDP growth in a recovery. In the last 6 cyclical recoveries, GDP was growing at a 5.4% rate at this stage.
Not only that, but 70% of the GDP growth alleged for the 2nd quarter came from increased military spending. Contrary to popular delusion, military spending does not make people rich. Instead, it consumes precious savings and leaves them with pockets as empty as a congressman's head.
Who can make sense of it? And who can fail to be amused?
Not us.
And now we learn that the consumer is getting his house in order. "Credit card debt dips as consumers cut back," says a Chicago Tribune headline.
The Fed says total consumer credit fell in June. But the Fed doesn't include mortgage debt... so, as consumers switch from expensive credit card debt to cheaper mortgage debt, total debt actually rises.
But as we pointed out, every mortgagee has a mortgagor somewhere... so it all balances out. Besides, you could wipe off all the world's credits and debits all at once... but what would really change? Our houses would still be there. We'd still have our cars, our friends and most of our favorite restaurants. So what's the problem?
Millions of people would probably go bankrupt in the transition... thousands of businesses, too. People who considered themselves rich would find out that they have less real money than they thought. Foreign holders of U.S. treasury bonds would get back pennies on the dollar, in real terms. Americans would be less able to buy imports. The foreigners, no longer willing to feed 'the world's mouth,' would have to do some consuming themselves.
Do you have a problem with this, dear reader? We don't. In fact, we look forward to it almost as we look forward to Humpty Dumpty falling off a wall.
Heck, if we could... we'd give the egg-man a little shove and get it over with."
