“Bad Macro” market
August 22 | Posted by mrossol | Debt, Economics, SocialismPull-n0-punches, Phil Town. Wow, this guy doesn’t mince words. Posted on 8/13/2011.
===========
I recently mentioned that I got out because of technical signals and what I call “Bad Macro”. Here’s what Bad Macro looks like and why it matters:
1. Unemployment officially at 9%. Unofficially at 18%. Unemployed people may vote for more entitlements instead of for a candidate who wants to get rid of the problem: federal government over reach. Every day there are more regulations that burden small business. The response of small business people is to increase their cash and go on vacation.
2. Liquidity Trap. No one will invest in a toxic regulatory environment. When Big Brother is looking at you with a microscope, you tend to freeze in place. Corporations sitting on $1 Trillion in cash and won’t repatriate cash held overseas. Huge companies are changing their HQ to overseas to avoid the toxic business environment in the US, in particular, the problems of labor unions, NLRB, and likely higher taxes. Why take risks if the President is demanding you pay 40% of your profit while taking away your ability to write off your expenses?
3. European debt could kill the Eurozone and bankrupt European banks spreading to banks here.
4. China is reeling from the slowdown and lowered US credit – They are reconsidering lending to the US.
5. Massive and unpayable US Debt officially at $14 trillion but including the unfunded requirements of Medicare, Prescriptions, Medicaid, Social Security – $60 Trillion. An impossible amount to pay.
6. Budget so large that only 60% is funded by taxes. The rest is funded by borrowed money. We spend over $1 billion a DAY on interest payments to creditors like China and Saudi Arabia – countries that hate our way of life.
7. Creeping commodity inflation is making the world a more dangerous place. When America complains about food prices, the little guys out there have revolutions.
8. Because of an unpayable debt, S&P downgraded US credit from AAA to AA+ – a huge blow to US prestige internationally, an excuse to dump dollars and the first step of removing the dollar from the world’s reserve currency. If that happens the world banks will flood with their reserve dollars and drive the dollar into the toilet against other currencies and no one will lend us money.
9. Mathematically the only way out of the debt is to print our way out of the debt and somehow absorb massive inflation or create tax rates that confiscate wealth. This creates fear among investors who could be creating jobs. Instead of investing in new factories, they’re buying gold.
10. Many pro investors believe we will default on our obligations by inflating our way out. Its easy to pay off $60 Trillion if the money we pay it with isn’t worth anything. They are investing in commodities and gold, not businesses. And that means no new jobs.
11. US consumer confidence is at a 31 year low. Stunning prognosis for retail sales long term. Which means more job loss and more fear.
12. A President and Senate who believe that if only the conservatives would vote with them, the government could create more jobs and a better economy. This philosophy has never been successful in the history of the world. You would think that the faiiled socialist experiments of the 20th century would have put these ideas in the trash heap but they have not. Robbing Peter to pay Paul only creates fear, not economic prosperity.
This Bad Macro is not likely to change between now and Nov, 2012. Which means there is nothing driving more earnings. Which means the Big Guys – the institutional investors – will not be pushing dollars into the market. Which means the market can’t go up much. Which means its likely to go down or sideways.
Leave a Reply
You must be logged in to post a comment.