August Stock Discussion

I don't know what your thoughts are regarding the U.S.'s long-term prospects.  However, I get the sense that you're a disciple of the whole Austrian school of economics.  So, forgive me  if I'm being presumptuous for thinking you're one of those "debt must be defaulted upon" guys. 

As I've written in this space before, proponents of the "let's get all the debt either defaulted upon or out in the open," guys like Karl Denninger and KOAJ, are operating in a vaccum.  It really bothers me to hear their argument because they make it seem as if there's no logical counter.

Yah, no shit, it would be ideal to just restart the system instead of ramming our heads up against the wall of the marginal utility of debt.  But my question to them (and you) is what happens in the interim? Do we all just run the risks of a government overthrow? What are the risks of letting everything collapse? I have yet to see their answers to these questions acknowledged.

So, while their advice is viable for a large car company, it's not practical as a nation-wide policy.

Actually, I take back what I said regarding financials being back to where they were in Sept 2008, they are HIGHER than where they were. We arent speaking PPS, rather market cap, which is the true valuation of a company, not share price.

I know what I am facing, as I have supported the actions of the FED, and I could lose on the trade, I could win. Its a higher risk trade but I feel pretty good about it honestly.

Hell I don't know whether to wish you luck on it or not

Everyone seems agree on the fundamental sham of the situation. It will be curious to watch what happens when the Hamptons empty out...



 

 And sadly, Pistol, the managers of the United States government have in fact been as incompetent as the clowns running Detroit. Wait a minute, actually, even more so. At least GM did not think it a good idea to set up a plant in Afghanistan...

As Tudor Investment Corp recently observed, “Impressive counter-trend rallies are a feature, not an oddity, of secular bear markets.” These rallies tend to die violently when reality reasserts itself.

  I think reality reasserts itself in the coming months when everyone realizes the small chance of a consumer led recovery with oil spiking towards triple digits, unemployment remaining 10% and above, and larger numbers of people upside down in their mortgages....not a good recipe for growth to me.

  As usual I would like to be wrong. I keep trying to find good news below the misleading headlines, and as usual, the details are...deadly.

 We shall also see the losses in Iraq and Afghanistan formalized within 24 months,

But, Vermeer, the view you just outlined is EXACTLY what every investment professional and his mother thinks! As I mentioned with WallStreeCappers, by no means do I disagree with you that the facts paint a bleak, bleak picture. I don't personally buy into all the green-sharts.  But, come on, this shit never goes according to script.

I think you really see 3rd and 4th quarter positive GDP gains (which will no doubt be due to account gimmickery like net exports making massive contributions).  And hell, maybe we'll get positive growth the first couple of quarters next year. This will have everyone feeling warm and fuzzy about the prospects of a recovery, that perhaps the Feds got this one right.

And then, the stagnation will come. You will get MASSIVE stagnation.  0.1% increase in GDP, -0.1% decrease.  That will be the norm. People will get frustrated and that's when the rounds of stimulus talk will come back into the fray.

If you don't have the risk tolerance to buy this market, do yourself a favor and don't short it. I think shorting this market right now (or in the intermediate future) portends bad things for your portfolio.

PistolPete,

How much debt can we as a country be expected to service??  Serious question.  Does the tab just keep running forever?

What are the options other then default?

Export more? (how in the hell we could do that is beyond me, i don't think anyone can afford to pay Americans enough to produce anything that could be sold to another country for a profit)

Sell off domestic assets?

Borrow more?


Is there no limit to how much foreign payment our economy can take?  At what point does debt service reach a deadly point of inflection, of which there is no return? are we there already?  The gov't only solution is to spend and borrow more. 

What value do other countries with wealth put on the only crap we have to offer, technology and war?

  I happen to agree with your diagnosis.I am not short the market (yet). I do think there will be a ginned up statistical mirage recovery, of a very,very limited sort.

 I do not think the stagnation will result in a second stimulus, especially as very little of the current one has been spent. (I also think that was very much by design:the Administration knows when elections are held, and it only needs the stimulus to really kick in before the midterms:until then, everyone can jump up and down all they want, and it won't change the composition of Congress).

 I think we will see stagflation. I think we will see a  pseudo recovery. I do not fight the tape, nor, however, do I see any hope at all of a real recovery as the domestic consumer is done for, and knows it.

 It is ironic to me that a person supposed to be a representative of Change is in fact a real reactionary.He seeks to resuscitate the old order, one built on wild American consumer spending on utter shit made in China, and flipping McMansions.Those days are over.And good riddance.

Perhaps if Obama were white, not just half white, his privileged background  would make it easier to see just how his programs (economic and military) only seek to reestablish the status quo ante. No matter what, those old days are over. We will witness defeat of those reactionary aims in the next 24 to 36 months.

 

You bring up a good point Rink Rat.   We all get the impression some jobs are never coming back in the economy.  In addition to the manufacturing jobs that everyone first points the finger to, there were thousands of people employed in the finance/mortgage/real estate sector that had no business of doing so.  They were only keeping the ponzi scheme engine humming along.
Here in CA, it was rediculous.  It seem everyone was a real estate agent or mortgage broker.   Where are these people getting jobs now?
So,  yes, to answer your question, I think this country needs to get used to a higher unemployment rate  than the 5-6% we've grown accustomed to over the years.
That low rate was unsustainable... hell bent on an over leveraged borrower.

Be easy,
All valid questions with no easy answers.

I don't disagree that debt can't perpetually be serviced. And that's where my decade-long stagnation theory comes into play. High taxes will be a continuing reality for Americans. You add this on top of a debt-strapped consumer, and you get serious harbingers to recovery.

High taxes are the only solution to excess debt. Other countries will stop buying our dollars, while we do everything in our power to monetize our debt (via printing).  Less spending is not an option at this point. Scaling back spending, at this point in the game, is not an option; it would only unravel the successful inroads made so far.

Things will be ok. People will have to get used to a lesser lifestyle.  People will have to get used to 10% unemployment, as LeRink astutely pointed out already.  People will have to get used to forgoing that new house so they can pay their taxes. People will have to get used to stagnant GDP. People will have to get used to stagnant growth.  Lots of adjustments to the American psyche need to be made. But we'll be better for it. People lived through the 70s and 80s with a much lower standard of living. They were just fine. And we will be too.

I will be interested to see if they hold it in, go higher or lower.

If the market is tired then they will go lower, being a gambler I think it closes lower than current levels.

 Try getting your kid into Punahou School some time...

The selling here is very unimpressive, tables havent even begun to be turned yet.

Again, everyone knows this. It's not an argument. It's fact.

Godspeed.

AIG going up like crazy, 25% today.

Its an 8 bagger off the lows, looks like the government is going to get paid on that trade.

Any reasoning that supports such a move, or is AIG a prime example of a governmental determinism?