What is the state of the economy?

[Sam Spade]

Well, the government has flooded (and I mean flooded) the system with liquidity and is spending (I would estimate) an additional 250 billion each quarter into the economy.  I'm going to ignore the rest of the world's contributions for a second because, well, although extremely important, it will only confuse.

For all this, we've managed to see some stabilization in certain sectors of the economy at the Q1 levels.  Deflation is still occurring, of course, but has abated a bit.  For companies, if you spot the earnings levels, for most that means 15%-30% below their earnings of last year.

Ignoring the private economy, we can therefore say that in order to keep things completely stable, the government would need to continue to do what it is presently doing (see above).  Actually, the math says that it would need to be slowly increased from this over time, but we'll leave it at even for simplicity's sake.

So, in order to achieve growth, debt creation will need to occur through the private sector, either at the consumer or business level (through investment).  At this moment, the numbers clearly indicate that the consumer is deleveraging greatly, which is still a very small amount in the whole scheme of things.  For the US consumer to reach its historical debt level, many years of deleveraging at this rate would have to occur.

Things are a bit more inconclusive on the business side, but from what I can gather through corporate data, there is no major industrial or technological expansion occurring.  Many companies have been raising debt, but these are companies whose balance sheets might blow up if the debt was not available.  Plus, if the US consumer is contracting his debt load, I fail to see the incentive for the investment into much of private business (which is aimed towards the consumer).  Sure, there may be an interest in expanding internationally, but those endeavors pale is size and scope (and have their own big problems).  At best, the combination of consumer and business growth is at stasis.

I fail to see how any recovery can occur under these conditions, though I do expect Q3 GDP to be positive just because of the way the revisions were done the past quarter and the amount of government spending that is being done.

Given that, my view is similar to Richius - the question is timing.

[Sam Spade]

Somewhat better than it would have been if them Republicans were still running the show - austerity and WEALTHFARE (the only appropriate term, which encapsulates their tax policy)

A hell of a lot better than if them Tea Baggers were running the show. No bailouts, no stimulus. That would have guaranteed a reprisal of the 'Great Depresssion'

I see much promise in Obama's "investment" strategy and WORKFARE tax policy but I'm not optimistic that positive freedom will, ultimately, triumph against negative freedom, unfortunately

I voted option 2

Good answer.  Mine as well.  The Sam Spades/Richiuses WANT to see a failure to be able to promote their policies and hopefully have another 1994. 

Far from it.  In this case, I am merely an observer and have no political goals or wishes in mind.  In fact, if what I think will happen actually comes anywhere close to happening, the end result will be something far from what I want.  I have noted that on many occasions going back to September 2008.  I don't speak for Richius, however, so maybe his posts are motivated by such hopes.  I don't know.

The scope of what happened in Fall of 2008 caught me off-guard because I was completely unaware that what was going on was greater than the mere collapse of a liquidity-driven housing bubble (not to mention its extent - which still amazes me).  For that, I apologize - I was too focused on politics and my own legal studies, even though I smelled "big" housing bubble since 2005 or so and acted accordingly with my own money.

I do want to say that I find it rather remarkable that you accuse my positions of being politically driven when the above two posts are nothing but politically-driven nonsense devoid of economic facts and realities.

I will be nice and leave with some helpful advice for anyone who own stock.  I expect the ISM manufacturing index to beat expectations and to probably go above 50.  Please use any bounce that occurs based on this number to either start getting out of your stock market positions or finish getting out, whichever.  The parabolic blowoff I thought might occur Friday before last has not occurred and time has pretty much run out on that scenario, I suspect (or may have already run out - you know, they don't ring bells at the top). 

The danger is that I'm a bit too early and that the jmfcst/opebo's of this world will continue to crow and lead people off on the wrong path for a while longer.  That's the way it goes.  Better safe than sorry.

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I'm just waiting for some people here (and it ain't just you or Democrats in general) to realize that, economically, Bush's policies are Obama's policies and vice versa, just that the benefited elites don't always align.  If we ever reach that point, then maybe we get somewhere.

[Sam Spade]

I will be nice and leave with some helpful advice for anyone who own stock.  I expect the ISM manufacturing index to beat expectations and to probably go above 50.  Please use any bounce that occurs based on this number to either start getting out of your stock market positions or finish getting out, whichever.  The parabolic blowoff I thought might occur Friday before last has not occurred and time has pretty much run out on that scenario, I suspect (or may have already run out - you know, they don't ring bells at the top).

You and others on this forum have been whining in the face of the best 6 months of the stock market in over 70 years!  Barring external factors, this market is not going to implode, but it does need a correction.  I for one would love to see a 10% pullback in the S&P with financials off 20% from these levels.  It would be a GREAT buying opportunity.

The vast majority of last week’s and today’s economic reports blew away the estimates.  The fact that the market eased off in the face of all these good reports simply means the market needs a breather.

Barring a geopolitical blowup, we are going to have at least 3% GDP growth the last 2 quarters of this year.  There is literally a wall of money, that is still frozen and illiquid, waiting to enter the economy.  This growth will help free up a good portion of that money.

Whiner?  Really?  You know that I don't trade except for the long-term and my views on the fundamentals of the economy are not to be used as trading vehicles (if I haven't made that clear, I'll make it clear again, now).  Since I don't play day-trader, I avoid bear markets because they have a tendency to eat bears and bulls alike, something we should have learned over the past year or maybe even today (but will have the opportunity to learn again).

But when I give trading advice, you should listen (and this is all documented in the record).  At the March lows, I said we either crash or bounce severely here.  After the first couple of days of bounce, I either said that I suspected was the big move up that I was expecting (I had actually expected it earlier in the year).  I gave an expected target of SP @ 875, a quite possible target of SP @950-1000 and an extreme target of SP @1050.  I think I also called for a pullback at SP @780 in the bounce up which never occurred and I think I also said that SP@955 was a probable top (to prove we're not all perfect).  In short, if only I had listened to myself...

Anyway, I see you listened to me today (smart).  I rarely give such excellent info (almost insider info), but I had it last evening.  Maybe if I had actually traded on it, the SEC would try to catch me (they couldn't catch a cold, but whatever).  Here's my advice right now - lay low on the stock market except for quick day-trades unless we significantly break SP@1015 on volume.  That means there is actually another slight leg up and things didn't just start blowing up today.  My long-term view is that targets for this move over the next few months range from SP@875 to SP@800 and a possible extreme of SP@750.  Don't think we break the lows in this move.  That will be saved for later.

My fundamentals advice right now is to watch China.  Not necessarily the stock market, but everything.  They are in the process of cutting short any possible nascent recovery you might dream of, not to mention laying the groundwork for screwing any institution or person who invested over there.  It will be fun to watch.

EDIT:  Meant to include in the overall analysis, we can bounce at SP@965.  But it must hold there for there to be another up-leg that I'm not presently thinking will occur.
 

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Labeling opebo and me as one and in the same is like comparing a drug addict with someone who takes medication only during times of illness.

[/quote]

But when you've both overdosed on the drug, what's the difference?

[Sam Spade]

Something huge just happened in financials. Then again, 'huge' things have been happening in financials (the other direction) all month, none of which have any apparent sanity behind them.

- Shanghai decline is accelerating. An attempted technical bounce overnight failed.
- We have now had a double top in the bond market, failed to blow past 3.99 for 10s set in June.

Overall, we are probably going to get a declining trend for the next couple of months. Good news is already priced in. What to watch:

- Consumer spending. Evidence is that consumers are moving towards paying down debt.
- The job market.

Finally, there is the uncertain results of the Fed 'winding down' their programs, as well as the potential end of the $8k tax credit for housing.

I heard a rumor of a "large bank default". (ninth-hand)

[Sam Spade]

Sam, I'll give you the bear market rally call, but the problem is your predictions tend to be extremely vague and you tend to hedge a lot-- I don't blame you for it; I never make definite "numbers" predictions myself and when I do I am usually wrong. But you do phrase your predictions so that you can say you were right in different scenarios.  For example, if we had gone into a 'parabolic blow-off' in the past couple of weeks, you'd also be able to say you were right.

Nah, I understand Beet.  I'm just beating my chest a little today.  Have to do it ever so often, feels kinda good. 

And yes I know I can be vague and hedge a lot, but short-term you get yourself screwed quickly if you don't, which is the reason why I speak about the long-term more often.

About the "parabolic blowoff", what I failed to include (mainly because the actually move that day was rather silly and pissed me off) is that it needed to happen quick, otherwise the odds for it went down significantly.  We are in that same situation right now, either SP@1015 is regained fairly quickly (couple of weeks or so) or no last leg up.