No Matter What Happens, Wall Street Does Not Go Down

Friday, September 23, 2005

Negative savings rates, accelerating inflation, a devastated southern coastline with even bigger threats looming from hurricane Rita - after Katrina was called the worst that could happen - ballooning current account, trade and budget deficits. A war that cannot be won, oil prices at (nominal) record highs, a 275 % rise in the leading interest rate, a declining bond market. Rumours that the major players in the market carry to much derivatives risk. Stagnating personal incomes and the expectation of sharply rising unemployment because of the hurricanes. A rising share of GDP attributable to a growing government while private sector employment growth has been the weakest since records began.
And what does Wall Street do? It shrugs it all off, moving sideways in a 10,350 to 10,600-point trading range. Does that sound logic?
What is keeping the biggest stock market in equilibrium? Certainly not private investors who are up to their eyeballs in debt. Neither money managers who can put their money to more fruitful work in the Far East or the commodities markets.
The sharp brekaout of gold does not exactly reinforce hopes that US shares are valued fairly as it indicates higher inflation than any concernced official would admit. Talking about officials: No president ever had lower approval ratings than Alfred E. Neuman, sorry, I meant George W. Bush. And no president has ever spent more money (which he has to borrow abroad to the tune of some $3 billion a day) while not spending one thought on how to repay it.
Oil prices today declining on the hope that Rita will be downgraded to a category 4 hurricane. Katrina was a category 4, so where is the relief. That's still enough wind to tear apart close to a quarter of the US' refining capacity, not to speak of disruptions in oil exploration in the Mexican gulf!
Is This All Too Good To Be True?
On top of it all sits the biggest debt pile American consumers have run up in history. Sorry, a wooden house is not worth a million dollars, nowhere in the world.
But Wall Street does not care. Turn off CNBC and either switch to Bloomberg TV or - best of all - start reading the blogs in my blogroll in the sidebar. Leave aside your political bias; the mounting debts don't care whether you are conservative or progressive. As taxpayer it is your common denominator.
The median size of an IRA is about $27,000. How long do you think you can live comfortably on that paltry savings once you retire.
Reading about 500 to 1,000 pieces of news every day I find it hard to come up with only one story per day that is halfway optimistic about the future of the US economy.
Not that Europe is somehow better off. Record unemployment in most EU countries coupled with a negligible GDP growth outlook does not exactly spell good times ahead.
Coming back to the US. Can anybody direct me to an industry sector that has a dynamic export growth outlook? Arms exports are excluded. That would be too easy at all!
The car industry with their oversized gas guzzlers is about to be strangled by high oil prices which are here to stay, given the growing oil demand in the Far East.
The insurance industry will come in the squeezer from the hurricanes.
The construction industry will get suffocated from the foreseeable bursting of the housing bubble.
The high-tech industry finds better educated workers in India and Singapore.
The service industry will face problems as soon as consumers feel the pinch from higher interest rates and rising inflation.
And why does Wall Street look so resilient in the face of all the problems covered in these posts:
US AAA Rating - How Much Longer?
We Can Guarantee Cash
Where Did All The Trillions Go?
Inflation In Hedonic Conundrum
Those who enjoyed annual income growth of 5 percent, please raise your hands
Current account balances show dramatic shift
US(SR) 6-year budget plan not very convincing - disturbing fine print
Counting the bubbles
Markets cheer 15 % decline of oil prices - after a rise of 434 %
There is no free lunch - higher rates equal higher risk
NYT - The Perfect Storm That Could Drown The Economy
Global struggle for oil can become a nightmare for the markets
Imperial struggles (no fairy tale)
Two oriental giants will compete for economic dominance
Oil prices and Fed Funds diverge strongly
If it weren't that cheap to print them greenbacks...
Experience shows that man never learned anything from experience (G.B. Shaw)
Mandelbrot: Old Formulas Will Not Work in Volatile Markets
Growth Sector #1: Conundrums
Real Estate - Debt Funded by Debt
Greenspan Stresses Need to Balance the Budget - by Higher Taxes and Lower Outlays
Bush Is Optimistic
FRB's Kohn: When the Unexpected Inevitably Occurs
Snow: Sort Out The (Hedge Fund) Mess Yourself
US Debt: 136,347 Dollars per Head
China's BIG Problem Goes by the Name of Energy
GDP No Gauge For Living Standards
Chart Of The Day: US Debt (That Was In 2002!)
A GAAP Look At The US Budget Reveals Multi-Trillion Deficit
Chart Of The Day: Deflation CycleAn Interesting Monetary Detail In The Aftermath Of The London Bombings
Greenspan Sees $60 Oil Shave Off 0.75 % Growth
Greenspan Bends Truth On Stabilizing Effect Of Gold Standard
BIS Warns Of Asset Price Deflation
The Shortest Possible Investment Advice
Will Greenspan Lose His Wreath Of Honour Before He Retires?
Greenspan's Blueprint For A Gold Standard
USA: The 3rd World Is Only A Few Blocks Away
Already 50 Countries Tie Currency To Euro
Thinking again of the resilience of Wall Street to reflect all these mounting problems in share prices, maybe teh following post sheds a little light on the true working of the big money game:
Money Firm Claims Wall Street Is Rigged By The Government
WSJ - Greenspan Sternly Warns Of GSE risks
Some things don't appear to be as they appear I conclude. All comments are highly welcome!


Wikinvest Wire