Leif Peterson

Four Reasons We're Headed Even Higher

If you plot the daily S&P500 return price over the last 20 years, you will notice that when unemployment spiked up the S&P500 rapidly dropped. In fact, in large measure the S&P500 is the inverse of unemployment. Because many corporations don't really "save" and most US consumers don't save (e.g. the negative US household savings rate of -2 to -3% before the subprime mortgage crisis), the majority of growth in the US economy is due to debt.

Now that debt is harder to come by, their are fewer jobs (corporate loans) and therefore a greater number of household mortgage forclosures. At present there is an interesting dynamic linking together Gov't debt, personal debt, taxation, credit, leverageing, etc., to the extent that the next bull market will likely be skiddish. The economies of the 50 states are wiped out, unemployment remains a large detriment to the economy, commercial real estate may worsen in 2010/2011.

If more debt and taxation are needed to correct things, then the expectation is that there is less certainty about the future. Right now investors should be long the markets but more vigilant about knowing when to leave the party, especially where to go once the party's over (bubble pops). The dollar is the current bubble that's bursting, so enjoy the ride while it lasts. I think a huge paradigm shift will be in store if things go south more than during Q3-Q4 2008.

Five Reasons the Market Could Crash This Fall

Good article on fundamental problems. Below are ten possible reasons why the markets won't crash this fall.

1. Summer will be over - people will be getting back into the markets.

2. Programmed trading doesn't cause a worst-case problem spelling financial Armageddon.

3. Rapid dollar devaluation attracts investors abroad whose currency has been beaten up slightly less.

4. The annual earning reports for Q3 and Q4 '09 are markedly better than the 40% drop one year ago. This is good news that the herd will follow.

5. The dose of morphine (stimulus) to the economy (to kill pain) is substantially increased. Nurses (investors) know the patient (US economy) is brain dead, but the surgeon (Fed) insists that his novel procedure saved the patient's life.

6. Through quantitative easing, the Fed continues to directly manipulate banks and indirectly manipulate the markets in a positive way.

7. People fighting the US economy by purchasing commodities start chasing resources that are not there. Large corrections in commodities occur.

8. IMF continues to squash gold. Equities surge as an alternative.

9. Big money owning large shares of precious metals periodically take profit, causing gold to drop -10% every quarter. Big money knows the only way out is gold, so they take profits whenever they need a new car, vacation, villa etc.

10. Good Karma catches up with the US economy, the planets become aligned preventing the sky from falling, and those retiring in 10-20 years who focus on well-run US companies with proven substantial earnings do well.