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Links and Thoughts

A bullish side of me.  just this once!    

It seems that for the time being, the threat of a military strike on Iran and thus $200 oil is off the table.  And thus one of my concerns is alleviated.  
 
Holiday sales come in better than expected and thus you can hear the exhales from the retailers.  I'm sure that improvements in Margins helped quite since they keep inventories much lower than last year.

Still there are larger more secular problems at work.  The bullish news is simply noise.  An interruption to the continued downtrend in economic activity...or best, a stagnation for some time to come.  Read below...
 
Quite an interesting comment coming from the darling of the banking industry don't you think?  I guess they are implying that all the trash on their balance sheet could be in trouble again in the future.  The banks know that they have bad debt on their sheets.  Despite strong earnings, the debt continues to lurk.  The worst part about it, is that the consumer is tapped out and we can't spend our way out of the problem.  The whole system would need to be "reset" to see a strong sustainable recovery led by the consumer.  The opportunity presented itself in 2008/2009 where the banks could have been nationalized and we could have gone down the "Swiss" way.  Stockholders would have been wiped out and bondholders would have been subject to a hair cut, but isn't this what capitalism is?  The system is not broken, it's the mentality of a "can't lose" attitude that the gov't has now been a part of.  And with the debt continuing to exist, it is a huge weight on the economy, once that eventually will be stronger than all the stimulus that our gov't has given the economy.
 
 
This dovetails nicely with my thesis in that the gov't is stuck between between a rock and a hard spot.  If they continue to spend to support an economy that needs to go through a natural process of deleveraging, interest rates will continue to rise and thus the "recovery" will be gone anyways (I continue to be a nervous bull on Treasuries).  The warnings continue but the equity markets (manipulated or not) continue to not listen.  This can't go on forever and eventually something will eventually "snap" and the result will not be pretty.   
The problem is that it is so much bigger than just gov't spending.  Deflation will eventually win out and that's why I still think that gov't debt is still a good bet.  What the gov't decides to do in 2010 will determine where rates go.  Will they continue to attempt MBS purchases thereby defacto monetizing the debt and thus lead to lower demand from foreigners?  Or will they take a more responsible role and accept that the natural process of capitalism needs to take place (a definite double-dip in my view).  Either way, where there is smoke, there is fire.  There is plenty of smoke in the "recovery" story we have now.  
 
 
Running with my previous article on my weblog.  The seeds have been sown for a questioning of democracy itself.  My article (here)
 
 


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