I'm Back

I am back from vacation and do not have a lot to say tonight. I did, however, just read a piece by a S&P 500 optimist complaining about all of us doom and gloomers.

http://seekingalpha.com/article/216369-s-p-500-the-optimist-s-argument-part-i-of-ii?source=dashboard_macro-view

I view myself as an optimist. Compared to a lot of people I know I am quite up-beat. You would not guess this from my blog, but I do view the glass as half full when it is half full. The problem is that I am not willing to ignore reality to support my optimism. If the glass is empty, I am unwilling to say it is half full. I have significantly more money in equities than I am betting against equities so I have no real stake in things going bad. Indeed, the economy doing poorly will negatively affect many of my close relatives and me, so I am not in any way wanting that to happen. Nonetheless, there is nothing in the freakin' glass folks! Ignoring reality will only make things worse.

The above linked post notes - based on math - that the market should climb 16% by year-end. This is based on historical PE norms. It is, however, based on consensus estimates of future earnings. The author does not say who comprises this consensus but one must suspect it is economists. While I consider myself an optimist, I cannot ever hope to compare myself to the optimism of economists. I recently read a post (that I wish I could find) showing economists over-predicting furture earnings on a consistent basis over the past couple of decades. Just go back three years to July of 2007 and see if the consensus on earnings then was correct. Indeed, earnings estimates have been coming down over the past few months, which is about the only reason some companies have been able to beat estimates. Accordingly, any analysis based on economist sentiment is not a reason for optimism from me.

I truly do want to find the silver lining in this economy. Certainly the news has a lot of tidbits that an optimist could latch on to as a promising developments. This past week has seen many, which has caused a spike in the markets. But I have not seen any reason to ignore the fundamentals, which diverge from historic norms in numerous respects. Debt - private and government - is still at historic extremes (private had come down a bit but only to be replaced by public) and this is the worst fundamental. The other, here in the U.S., is simply the fact that our economy has been super-charged for a couple of decades. Normal, sustainable activity, is where we are reverting and it is not what politicians or optimists are ready to accept. Yet, it is reality, so get used to it. I have no choice but to say the glass is empty, or nearly so. I do have hope for the future, but it will take years to put the past behind us.

Disclosures: None.