posted on Nov, 28 2003 @ 09:58 AM
....as in crack pipe.
-10 + 5 = -5, right?
So, till numbers bridge over the break even point, take a vector for what it is, a vector - not steady state solvency.
The big rise in the stock market is definitely telling us something. Bulls think it says the economy is about to take off. But I think it's a sign
that America is still blowing bubbles that a three-year bear market and the biggest corporate scandals in history haven't cured investors of
irrational exuberance yet.
Or, to put it another way: it's hard to find any real news to justify the market's leap. Instead, investors seem to be buying stocks because they
are rising which is pretty much the definition of a bubble.
Before the Iraq war, optimists attributed the economy's weakness to prewar jitters. They predicted a great postwar economic surge: oil prices would
plunge, reassured consumers would open their wallets and businesses would start investing again.
We're still waiting. Oil prices are off their prewar highs, but they're still higher than they were last fall. Consumers seem to be spending a bit
more, but we're talking about fractions of a percent. And businesses are still more interested in cutting costs and laying off workers than buying
new capital goods.
There have been some pieces of good news a not-too-bad manufacturing survey here, a pretty good housing-starts number there. But there has also been
bad news, especially regarding employment. Payrolls are still contracting; since the U.S. economy has to create 80,000 jobs a month just to keep up
with a growing working-age population, the already miserable job market continues to get worse.
Don't tax cuts and low interest rates create the conditions for an economic rebound? Well, interest rates have been low for a while. And everything
that has happened since 2001 suggests that Bush-style tax cuts which, because they are targeted on the very affluent, basically give people with
plenty of cash to spare even more cash to spare provide very little employment bang per deficit buck. Meanwhile, desperate state and local
governments are continuing to slash services and, in a growing number of cases, raising taxes, undoing much or all of the stimulus from the federal
Does the collective wisdom of the investor class perceive an imminent, vigorous recovery that is invisible in the data? The market isn't always
right. It wasn't right when it sent the Nasdaq to 5000; it wasn't right in the fall of 2001, the summer of 2002 or the late fall of 2002 three
would-be bull markets that fizzled. And selling by corporate insiders hit a two-year high in May.
Meanwhile, the average stock is selling at 31 times earnings, twice the historical norm. And if you take into account pension liabilities and the cost
of stock options, that number goes above 40.
A few months ago, some analysts began to argue that because interest rates were so low, even today's very expensive stocks were a good buy. I don't
agree, but that's a long discussion. What's clear, however, is that investors' big move back into the market has been driven not by careful
comparison of returns, but by the fact that stocks are rising and the fear that if you don't buy stocks, you'll miss out on a good thing. The new
bull market isn't forecasting anything; it's just feeding on itself.
Could the story I'm telling be wrong? Of course. Maybe a vigorous, though still invisible, economic recovery will deliver the sustained, double-digit
earnings growth that analysts apparently not chastened at all by recent history are once again predicting.
But even if that happy scenario comes to pass, it's hard to justify current stock prices because if the economy booms, the low interest rates that
might conceivably make stocks worth buying at 30 times earnings will soon go away. If and when businesses start borrowing again, they'll have to
compete for funds with the federal government, which will be running $400-billion-plus deficits as far as the eye can see. Meanwhile, foreigners
won't keep lending us $500 billion each year; in fact, private investment inflows into the United States have already dried up.
Oh, and the banana-republic policies now being followed in Washington won't just drive up interest rates; they'll probably generate a full-blown
fiscal crisis one of these years. That can't be good for equity prices.
In my industry, we won't likely see the same demographics ever again: Applications Developement will come in a can from India/Taiwan et al, for the
forseeable future. We no longer have the movement in those ranks on anything near a career staging level. Infrastructure at least has the on site
component always inherent; but that too has dwindle in high level numbers. What you have now is a shift towards the things that can't be sent out of
country: desk side support , break/fix & some help desk. None of which have career options in the $100K salary range outside of management. So it
never was 'technician' grade folks being displaced, but those who had metriculated & had a solid career in play. People outside of the industry
don't realize that we've had a whole segment of a white collar profession simply die. In 3 years.
I am hoping and praying for economic growth - I need it to stay self employed and to eventually grow my business again.
BUT, I am not buying the pipe dream and faith based economics over substance. I won't because I can't eat it. I can't cut a multi year contract on
it. And I can't sign up for it.
At the end of the day, even though I am against eveything that the Bush team has brought us, if they brought us some real economic growth that's
sustainable , real and, well, real, I would sing their praises. I am, after all, a money lovin' capitalist!
[Edited on 28-11-2003 by Bout Time]