It was exactly one year ago, March 9, 2009, when the bottom for stocks was set. I checked out my post from that day and I was surprised at how wrong I was going forward. Some great thoughts at the time:
- Earnings are both shrinking and unknown quantities
- Technicals are bad
- The market is playing chicken with the government
- Many market participants have said "no mas!
- Deleveraging and lack of game rules mean many do not want to play
My final paragraph:
I am stunned at the current market levels. I am more shocked that we have yet to face "the moment" I have written about a few times. Denial still runs high, and many still think buying 6 months to a year will magically fix all that is wrong. That viewpoint will die off sometime this summer. Maybe then we will get some direction.
So based on where the market indices are today, I was wrong on all accounts. Or was I?
That gets a bit tricky. What we have is a monster 70% moonshot market ride from the lows. The bulk of the move was accomplished by low volume futures gunning by a small number of large players and computers selling each other stocks.
Yesterday was the lowest volume day for many trading vehicles. Zero Hedge had a great graphic on the SPY aspect of this yesterday. While earnings have been better than expected (what are the expectations based on? reality?) cost cuts and cutting overhead (read as jobs) have been the drivers of gains not increased revenues.
So how are things a year after the big bottom? I would submit that the only structural difference this March from last March is psychological.
Is the housing situation getting better? Maybe at the margins, but that mess is a slow motion wreck that will last years. Are all the losses by the banks finally done? Not if second liens get written off as "worthless", as Barney Frank would like to see. The jobs problem is not going away unless you are going to work for the census.
So what's the deal?
As I detailed in several posts (The Total Miss Pricing of Risk, Compression of the Risk Pyramid) the generally accepted fact out there is that losses are a thing of the past because the U.S. government will take them and pass them along to the taxpayer. Pension trouble? The Treasury will make good on obligations. State budget issues? No worries there either. What if mortgage rates rise and home prices and sales go down again? The Fed will re-enter the market should things deteriorate. Across the spectrum, the level of complacency is high. Even the Europeans are in on the game with packaged aid. Iceland is still sorting through their mess, but they don't count anyway.
I have been tagged as a "doom and gloomer" and I do not think that is an unfair characterization. I do tend to focus on the bad and not the good (or less bad, less quickly, as is today's norm) but I also tend to be more fact based in my thinking. I also do not have a bias per market direction. If it goes down, it goes down. If it goes up, it goes up. Many of the more optimistic types have a vested interest in a higher market.
In the end, I think it boils down to one observation. The markets right now are pricing in cheap money, practically forever. Participants have called the bluff of the government and now are operating with the full belief that they are 100% covered by a supportive big brother. Every day I see more and more articles which discuss, like it is no big deal, the desired policy for unlimited spending by the US government to engineer a utopia of free money and low rates so that the textbook promise can be achieved.
On the surface everything looks better than one year ago. Structurally, I think the situation is more dangerous than ever. Who backstops the US government in the end? We do, the taxpayers. If the V shaped recovery that will take us back to the bubble zenith does not materialize pretty soon, I think the sort of tax increases that are going to have to happen will scare the living crap out of people. I am not convinced such tax increases will be possible politically. That leaves the printing press.
Addendum: As I have been saying, the last hurrah is the US government and I would point you towards a Zero Hedge item just up that spells it out: Is the Federal Reserve Insolvent?
Stop me if you have heard it before: Trillions in liabilities and about 54 billion in cold, hard cash as a buffer. Of course, they can always print money and as we all well know, no country that issues its own money can ever run out of it!
Have I mentioned I like gold and silver here? Like, a lot.