How crazy is it that many investment professionals as well as almost all the media treat Europe and the US financial mess like a problem that sooner or later will be resolved in a good way? To think that, in my opinion, Wall Street pros have to be blind. To me, their myopia is due to the fact that since 1983, there has never been a two year downturn in stocks and therefore all problems sooner or later get worked out. Indeed what experience has taught all current stock market professionals is to hang in there and sooner or later the bull market will resume. That is why the markets are really not that worried.
Europe today is crazy. I cannot imagine the Greek public agreeing anytime soon to allowing Germany to manage its money. In France the socialist candidate favored over Sarkozy wants to spend more on social welfare and raise taxes on those who make money. The news from Italy is truly hilarious, although very sad as well. At a fancy ski resort almost all the patrons and shop owners were tax dodgers, driving Ferraris while declaring poverty level incomes to the state. And even Germany is reporting lower than expected industrial production.
What is so is that Europe is not yet willing to accept economic reality. How long can they kick the can down the road before their stock and bond prices collapse? Who knows. I usually am early in predicting market crashes. At year end 1999 I wrote that the huge supply of new shares from unlocking internet IPOs and option conversions would swamp the stock market forcing a major selloff. I was several months early.
The US economy as measured by GDP has been growing by less than 2% since 2000. After tax income, including capital gains, is still down 10% from the early 2008 peak. Yes, the Bureau of Economic Analysis reports that annualized wages and salaries currently are actually up by less than 2% since the early 2008 peak. For some reason the Bureau of Economic Analysis does not count capital gains as income. Why? Ask their economists not me.
Going forward at some point printing paper will no longer keep stock prices rising. Something has to happen. Either we have to sharply cut future obligations or dramatically increase economic activity.
A shrinking federal, state and local public sector on top of the US government forcing a shut down of the housing sector and more BS regulations make it almost impossible for our economy to resume growing by the more than 3% rate that it experienced from the end the World War II through the end of the 20th century let alone fast enough to pay our future bills. Add to all that a shrinking Europe and slower growth in the emerging world.
All that is why we remain cautiously bearish.
President & CEO TrimTabs Investment Research
Portfolio Manager for TrimTabs Float Shrink ETF (TTFS)
Tags: Bearish Market Bullish Market