Where is the Market Going?!

Obviously I have been wrong on the market direction for some time. Daily I scratch my head and elsewhere and wonder how in the world can people be buying stocks and believing we are in a rebound. I will admit we may be at or near the bottom of the recession, but there is a stark difference between bottom and recovery and the markets of late are apparently predicting a fairly significant recovery back to our spending ways of yesteryear. I view that as an impossibility, literally. The math simply does not add up and won't for some time. And so I will stay on the sidelines kicking myself and waiting.

So why am I saying impossibility, let me count the ways:

1. While U.S. consumers have in fact been paying down debt, it is still near record levels and I suspect much of the debt reduction has either been from government stimulus or defaulting on the debt (which results in it being eliminated);
2. We had the destruction of over $13 trillion in wealth in this country during this recession and outside of government stimulus little of this has returned;
3. Median incomes are down over 3% this month YOY so we do not have more money to spend absent government stimulus, which is the government borrowing money for us to repay later;
4. Housing is nearing a bottom generally but still sluggish;
5. Commercial real estate is just starting to get to its lowest point and will not likely get there until 2010 or well beyond;
6. Mortgage foreclosure issues will continue to be an issue as Alt-A mortgages, especially Option ARMs, and prime mortgage defaults continue to rise and will not likely peak until 2010 or 2011;
7. We have major shadow inventory on the real estate market, which is homes that are not officially for sale but belong to people wanting to sell. Reportedly, a lot of banks have held off on foreclosures as they do not want to deal with the costs of foreclosure (shadow inventory) and 24% of homeowners would like to put their homes up for sale if the market were better (shadow inventory). That is enough shadow inventory to keep home prices depressed for years to come;
8. The retail space in the U.S. is roughly 50% overbuilt compared to any other country in the world; and
9. Unemployment may have stabilized a bit but there is not likely to be a big bounce off the bottom.

I have more, but this can get depressing, so let's take this a few steps at a time. Any hoot, do you see my point? And one last point here, I do not like at all the Administration response to this crisis. I voted for the guy but he has surrounded himself with idiots and he listens to them way too much. Actually, I am not sure they are idiots. I just think they are answering to the big banks and not the people they are sworn to serve - the taxpayers. I would like to hang them high, very high. They are bending over backwards to please the AHs that got us into this mess. And that keeps me up at night wishing I had voted for the other guy.

Here is an important piece on what the Administration is doing about banks too big to fail. It starts by noting many very prominent economists who think they should be dismantled, which is what I favor and have touted for months, but then it notes what Geithner, Summers and the like are still kissing A with the big banks, who have treated them well in the past. Makes me a bit ill to read it.

http://www.nakedcapitalism.com/2009/09/guest-post-top-economists-say-we-must-break-up-the-insolvent-banks-government-says-lets-make-them-bigger.html

Disclosures: None.