Dan Schmeidler's  Instablog

Equities are a very good indicator of current to mid-term trends and there is no question that the equities were correctly predicting today's trends when they began rising back in March of this year. But what exactly was that prediction? Well, (thinking back) we were only a few months into the new administration. That’s when the markets tanked. And that’s when the markets provided the new administration with a unique opportunity. Or was it more like a bait?

The markets tanked because of uncertainties regarding this administration’s plans to handle the debt/credit crisis. And looking at the barrage of recently formulated economic policies it is pretty much clear which direction “all” this is going: More and more debt.What is striking here is that equities seem to be rising every time new spending plans are announced or formulated: Universal health care, economic stimuli, more bailouts, cash for clunkers, on and on. It does not matter. The more debt: the better.

In light of rising equities, it is baffling to think that we are talking about the same kind of debt that recently resulted in devastating capital contractions and economic losses. So are equities then signaling a shift in the domestic and global perception of U.S. denominated debt and credit-worth?

There is no question that the U.S. is closely engaging its creditor nations at this time. But what are we really telling them. A fable? Once upon a time the U.S. debt/credit machine fueled great domestic and global economic growth. Well, as long as U.S. debt keeps selling, U.S. policymakers will naturally show no hesitation in admitting to their guilt, shame and past screw-ups. It is only when the big sale ends that this shame will be passed on to our creditors and donors alike.

Here are some notes on how I charted the NVR valuation:

The recent rally in the Homebuilders and REITs might have taken some investors by surprise. But what is even more surprising is the current valuation of these equities. A quick look at a chart of a trailing P/E for NVR over the last 44 months (or so) reveals an unusual spike: