Long Time - But It's Time

It has been a long time since I last posted but I thought one before 2014 ends might be a good idea.  And I am better at seeing signs of trouble than signs of good times, so now is a good time for me to post again.

The good news is that the U.S. economy is doing well.  Unemployment is down, foreclosures are down, gas is down and the market is setting new records.  All honky dory, as they say.  There are, however, a few problems worth noting.  For example, while interest rates continue to hover near record lows and housing has recovered some, it is nonetheless cooling with sales dropping.  Some of this is undoubtedly seasonal, but some might be tied to the concept that median home prices have just gotten to where the average person cannot afford to buy, even with low interest rates. Don't believe me?  Well, check this out http://www.nakedcapitalism.com/2014/12/wolf-ricther-official-inflated-home-prices-strangle-us-housing-market.html  And just imagine how poorly housing would be doing if interest rates were to rise.  This I suspect is also tied to the very low rate of at which wages are increasing.  While the rate slightly exceeds the very low inflation rate, it still is not sufficient to keep up with significant increases in housing prices we have seen the past three years - as in double digit and high single digit percentage increases.  Tie all this to the concept that housing construction is a significant driver in our economy and you get the picture.

Housing is not the only issue we face of course.  The stock market is again setting records and has been on an unusually long bull market.  The median bull market is around 50 months and we passed that mark in May of last year, putting us around 69 months.  Now we are no where near a record.  The Great Depression followed 98 months and the bubble that burst in 2000 (from which the Nasdaq has still not fully recovered 14 years later) lasted a full 153 months, which tied the record.  Still, we are longer than median and longer than average and I personally do not see a whole lot of support for it continuing.  Indeed, looking at the P/E 10 Ratio to the S&P, explained here (http://www.advisorperspectives.com/dshort/updates/PE-Ratios-and-Market-Valuation.php) and you see we are at the third highest historical mark above mean, beat only by where we were in 2000 and 1929.  Just sayin'.  Of course, no one really follows this type of analysis, other than the likes of Benjamin Graham and Robert Shiller, but what do they know.

Need to get going, but let me add one more thing to chew on.  The U.S. is doing better economically than pretty much the entire rest of the world.  Europe has not recovered and parts are in deflation, as is Russia.  China has significant issues as well as Japan.  Let's see where that takes us.