http://www.bloomberg.com/apps/news?pid=20601087&sid=aXT58pDbyVa8
It is the last major average to erase its declines for 2009. Obviously we are now off to the races!! What with the S&P trading at an average PE of 33 on projected 2009 earnings, job losses still increasing (though at perhaps a slower rate), housing still in the dumps, commercial real estate falling off a cliff, overall US debt still at record highs (both nominally and as a percentage of GDP), the World Bank worsening its prediction for economic decline this year and financial institutions being allowed to hide toxic assets on (or off) their books, I am thinking of putting all my retirement into equities. Then again, perhaps I will just wait a tad.
The single biggest factor that in my mind still spells trouble for this economy for a long time is overall US debt. Even if you ignore Social Security and Medicare issues, US debt is massive. And wages, on average, adjusted for inflation, have been declining for decades in the US. This is why we have been building debt to maintain our standard of living. We have also gone from the one spouse working model to both working (some two jobs) to survive.
During the same time, a significant part of our GDP, roughly 30%, became tied to the financial sector. But - let me tell you a secret - despite government support, that sector is toast. It is not just toast because of past bad bets. Yes, trillions in derivatives still hang over their heads, but I suspect at the moment the government will help this sector overcome those issues. The real problem is that they have no good game plan going forward. They made money on derivatives but that horse has left the barn. They are not likely to make a lot on mortgages with the housing market down and rates low. They are not likely to make much on anything else for a while. Long story short, there are way too many large financial institutions trying to share what is now a very small pie. We got into this mess largely because they created increasing sophisticated (as in stupid) means to make money out of thin air. Surprise, this does not work. Now that they need to make money the old fashion way, they are truly screwed. You tell me how they are going to all make money, repay their debt to the government and still provide 30% of GDP. Go ahead, I am all ears. When you have the answer, I will reconsider my stance on this rebound, but right now I am just sitting here shaking my head.
http://blogs.ft.com/maverecon/2009/06/the-fiscal-black-hole-in-the-us/
I have not seen a lot else out there worth noting, though it does seem that a trend is building on tearing down old cities, like Flint, and this is getting some press.
http://www.calculatedriskblog.com/2009/06/cities-downsize-to-survive.html
http://www.nakedcapitalism.com/2009/06/low-interest-rates-lead-to-overbuilding.html
Did I mention the median home price in Detroit is $6,000. No, I did not leave off any zeros. Homes there cost just a bit more than my 1995 Explorer, and it has 175,000 miles on it.
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