Debunking More Populist Babble

By iamned - Last updated: Friday, May 1, 2009 - Save & Share - 4 Comments

Yesterday seeking alpha published a long-winded article by Paco Ahlgren titled Nothing About This Economy Is Surprising. The following quote is an example of how doom and gloomers lack perspective regarding Geithner and Obama’s stimulus efforts. They keep falling back on the same meaningless, populist platitudes:


Well, apparently listening isn’t part of the equation, because governments everywhere are printing unprecedented sums of money. They are creating still more easy credit. They are doing all the same things – on the largest scale ever — that got us here in the first place. Above everything else, though, they are fulfilling Einstein’s famous dictum.

But the stock market is surging and economic indicators allude to a ‘V shaped’ recovery. James Byrne from grand-view writes:

Consumer spending was up +2.2% (+1.5%). Imports declined 34% vs exports declining 30%. Net exports resulted in positive effect of 2% to growth as the trade gap narrowed….So, while the headline numbers seem troubling, keep in mind the following. The first quarter is in the rear view mirror. It’s history…

Agree 100%. So why is the the recovery defying the doom and gloomers? Because the much detested bailouts and stimulus are working, which is why wallstreet likes them and short sellers despite them. You can inflate your way to prosperity. It worked in 2003, 1982, and it’s working now.

Keep in mind how cheap stocks are, as illustrated by the chart below. If the S&P 500 had a PE ratio of twenty it would amazingly be trading around 1,500. The fifty percent plunge last year was mostly just profit taking, combined with a small degree of economic weakness due to excess consumer savings. That’s all. It’s not a new paradigm of ‘renewed frugality’ or any such nonsense. Now if the S&P 500 had a PE ratio of around twenty while trading at 890 it would portend to a more ominous economic situation.

gtgg

You can’t just assume that excess liquidity caused the bear market. Why? Because the net economic gains between 2003 and 2008 were positive, despite the stock market falling fifty percent, and these gains can be attributed to the fiscal liberalism of Alan Greenspan and George W. Bush. Had we embraced fiscal conservatism, isolationism, and protectionism in 2002-2003 there is a strong possibility the S&P 500 would be trading at 900 now with a PE ratio of twenty, instead of thirteen. Liquidity, globalization, and free market capitalism is the lifeblood of the stock market, economy, and the enabler of the type 1 civilization transition.

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4 Responses to “Debunking More Populist Babble”

Comment from Harry
Time May 2, 2009 at 6:26 am

What is the core issue behind the current economic problems?

The housing market bubble.

What is happening in the next six months in housing?

A ridiculous number of foreclosures due to pay option arm resets.

Don’t believe me? Notice of defaults for the first quarter of 2009 were at an all time record high. And nearly 75% of NODs are currently turning into foreclosures. The next 6 months are going to be worse than all of 2007.

Take a look at this: http://tinyurl.com/q12009NODs . Just look at the first two charts. The dip in the first chart is your “recovery”, and was simple legislation that stretched out the foreclosure process by a few months (SB 1137 and similar bills). Every major bank either has huge exposure to this directly, or through recent acquisitions.

The bailouts and stimulus packages will be dwarfed by what is going to happen in the next 6 months in California alone, yet alone the whole country.

But by all means leave your stock in the market, or better yet, buy a house. I am sure it will be an excellent investment in the “type 1 civilization transition”.

-Harry

Comment from stats79
Time May 3, 2009 at 1:43 am

“type 1 civilization transition”. Gawd, you make be laugh. You have got to be one of the silliest people on the planet coupled with one of the most over-inflated egos. You are entertaining the way Andy Kaufman used to be. But I would never take Andy’s advice seriously, not would I your’s.

Comment from iamned blogger
Time May 8, 2009 at 7:54 pm

I have an overinflated ego because I am smart. Something you should try to be one day.

Comment from Ali
Time May 12, 2009 at 6:07 am

Your own chart alludes that stocks may become cheaper still.

You have an over-inflated ego precisely because your ego does not match your intelligence. Otherwise it would not be ‘overinflated’.

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