Recent Highlights, August 2009
Here are some of the recent highlights I have come across over the past week or so. I remain bearish and hope the market continues to inch higher, which would prompt me to continue selling/shorting this rally. (I am paraphrasing here, yet still giving credit to the original authors).
1> There is an overhang of deteriorating mortgage and commercial debt (John Hussman). Meanwhile, unemployment continues to drag on, which may be the catalyst that brings the market back to its senses.
2> There are material effects from continuing delinquencies and foreclosures. In addition, the Fed is creating more base dollars in one year than in the entire US history (Hussman).
3> Economic expansion depends on gross domestic investment. Right now, there is continued deterioration in private demand and investment (Hussman). The ongoing deleveraging process further reduces near term GDI.
4> Stocks look expensive even if assuming peak 2007 profit margins (Hussman).
5> Economic forecasts for both S&P 500 earnings and GDP would be a statistical outlier. It is likely that only one of these forecasts will be accurate, although both could be wrong (Bill Hester http://www.hussmanfunds.com/rsi/expectationscontext.htm).
6> In 2011, 48% of US homeowners with a mortgage will owe more than the property is worth (Deutsche Bank forecast).
7> The all-inclusive unemployment rate published by the Bureau of Labor Statistics is 16.4% (Simon Maierhofer). (Since his article was published, unemployment decreased from 9.5% to 9.4% in July, but the all-inclusive unemployment rate INCREASED from 16.4% to 16.5%).
8> During prior bear market bottoms of historic proportions, P/E levels, dividend yields, and mutual fund cash reserves have always reached levels indicative of a market bottom. Unless those indicators provide their stamp of approval, the market is overvalued and any rally will turn out to be short-lived. Based on those indicators, the market is grossly overvalued, still (Maierhofer).
9> There are fears that the Fed will monetize Obama’s ballooning budget deficits (future inflation); markets are fearful of the consequences of the Administration’s excessive spending; and the White House is broaching the idea of a value added tax, which substantially increases the price of everything (Steve Forbes).
10> The US has a one year adjustable rate mortgage on a $13M subprime mess. Delinquencies in California are about 10% and will worsen (Peter Schiff).
