Dow 6500 in 6 Months - Redux
Posted by: admin in VIDEOS, tags: bond market, dow 6500, yieldsI started thinking about my recent post and tried to play the devil’s advocate to see if I could counter my Bearish soul. While out for a walk, I actually came up with more reasons to be nervous.
To continue from Dow 6500 in 6 months…
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1. Oil - What does a oil price rise do to the beaten up consumer? Around where I live the price has risen from $1.96 to $2.49 and this is during a recession when everyone is cutting back. I know that the weakness in the dollar isn’t helping to bring oil down, but what if oil spikes and we get gas at $3.75 to $4.25 again? I seem to remember lots of reports tell us “XXX billions are being put back in the consumers wallet” as gas fell from $4 a gallon to $2, so isn’t the inverse true? Isn’t this a new tax the consumer “has” to pay in order to function?
2. The 10 year - Starting to spike, this is unbelievably bad news for Mr. Bernanke and the “green shoots” in the housing market. If you had people starting to dip their toes in the real estate water when rates were around 4.5% to 4.75%, they are going to run for the hill if we start seeing 5.25 to 5.75%. Their goes your curious buyers…
3. The Treasury Auctions - The government bond market is on a roller coaster right now, at historic highs and then whipsawed back. If China and other central banks only want to be in 2 year and 5 year debt, who wants the 7 year? I guess we will find out today. If the yield spikes on the 7 year in order to get buyers, what the *@#@$%! is it going to do to the 30 year. How bad will budget projections be off if their “assumed interest rates of debt” are off by 2%? Wow.
4. Obama and the Unions - I don’t want to start a political fight here and I know Obama is a very emotional figure for some, but his kowtowing to the unions is getting ridiculous. You are suppose to start running for re-election 2 years before you are up, so it would be 2010 for Obama. He needs the union vote for re-election, well, let me re-phrase that, he might not actually NEED the union vote, but he really, really would like to lock it up. He is just handing concessions over to the UAW and other unions are a blistering and ethically questionable pace.
5. States want Federal Guarantees - The state of California want a Federal guarantee on its debt issuing in the future. What happens when 49 other states want that? Now the Federal government will have to guarantee the munibond market? This can’t be done, we don’t have enough high speed money printing presses to even do this if we wanted to.
6. Year over Year Taxes Collected Down 34%. - What does this do local and state workers? Absolutely crushes them. How many more program cuts and layoffs will have to happen when over 1/3 of your projected revenue is gone. Talk about a nice stream of people hitting the unemployment office and losing their benefits, this will be ugly. Not to mention the “spike’ in Federal hiring has a lot to do with census hiring and they are only temporary jobs.
The more I think about this mess, the more depressing it gets. The story we are suppose to believe is that we can transfer our personal debt from our Mastercard and Visa bills to the government (ie lower private and consumer debt, skyrocketing government debt) and all is well? So I will work hard to lower my Visa and Mastercard bill, and then pay out the savings, plus more, when my taxes are due? Huh?
This is classic “robbing Peter to pay Paul” scenario. It can’t work, it is a shell game right out of the streets of NYC. You can’t get out of debt by just printing more money and paying the bills. Every action has a consequence and you can bet your bottom dollar (if you still have one, it is only worth $.58 now) that these chickens will come home to roost someday. We are just putting off the inevitable day of reckoning. If we just had a Time Machine to tell us when this would happen, we would all be billionaires.
Now, do I want to sound like Jim Rogers and move my family to China and start teaching my kids Chinese? No, but he is right about (paraphrasing) “No society in the history of the world has ever gotten out of recession by printing more and more money and devaluing their currency. Weakening a nations currency HAS NEVER worked out in the long term in helping that nation”.
No one knows for sure what will happen and it what time period. We can all only make educated guesses, sometime we are right, sometimes we are wrong. I just don’t like the macro-level look at what our economy, currency, and taxes are doing right now and what is says about our future.
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