Kinda scary basically we're saying that if we pretend all sorts of things are, or aren't true, and then the stock market goes up, then the consumers gets confident and starts buying and borrowong then tax revenues pick ep etc. etc. and it's just that easy.
We can pretend that commercial RE loans aren't going bad on our banks' books (extend and pretend), or that state and municipal budgets aren't going to be a huge drag on the economy or, in the case of Europe that the populations of Club Med will put up with a decade or more of austerity without political fallout (so there's no sovereign risk).
We can do all those tihngs but I'm well nigh certain that most of those things that I list and others that I didn't become big problems.
Meanwhile, governments are doing all they can to promote these illusions, for obvious reasons, and you really can't blame because the only way out is to bouy financial markets and thus consumer sentiment and thus buying, borrowing and employment kick in.
Corps are cutting the fat one- some meth in the economy, almost no interest expense, employment costs cut to the bone. Earnings are good but how much better can they get without employment, housing etc. kicking in further? Ernings are by definition backward looking, most of the forward or present looking indicators aren't hopeful- ECRI lei, baltic dry, rail freight loadings, housing, employment.
I find these to be dmanabley difficult markets to trade. Like this spring, the tendency of markets is to slowly melt up behind all the happy talk. Then one day there is a story- Greece, Dubai, whatever and all the gain, and more, evaporates.
Think the same thing happens here (and financials are more than ever pertinent to commodities in the "all one market" world).
What's the story, and when?
Europe was well known but suddenly somehow it was a story. It may have been a bit like the subprime game in the US where the authorities began to realize they had a problem long before the blowup but chose to manage it into a particular timeframe.
Dubai caught almost everyone unaware and it was the beginning of the end of the dollar carry trade.
Anybody's guess, what and when. But it'll happen. In my view a reason to maintain a defensive posture on production.
Best, h
