Due to personal anecdotal evidence, I just do not have any faith in these numbers. Rather, I think they are positively distorting the jobs picture, which is already decidedly bleak.

Month-over-Month Net Job Creation (from BLS)

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The Real Problem—Debt Delinquency rates and the Fallout

What about debt delinquency rates? The sub-prime fallout that we have been talking about for years is clearly upon us and I don’t focus on it in my writing much anymore as it is now in the popular press. The problem is that debt payment delinquency rates are no longer confined to the sub-prime space. Rising delinquency rates are permeating prime loans and Alt-A loans and other types of loans like credit cards and consumer discretionary items like Harley Davidson (HOG). What could be more of a consumer discretionary item than a chromed-out Hog?.

Subprime and Prime Seriously Delinquent Mortgage Rates

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Delinquency Rates on Consumer Loans at Commercial Banks

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Why are the debt delinquency rates of such great concern to me? Because Wall Street took all of these loans, and then packaged them up in to securities that are so esoteric that there is no secondary market for them.

There are large amounts of Level 2 and Level 3 assets that sit on the balance sheets of major broker/dealers and commercial banks. Even worse, they sit on the books of countless municipalities, money managers, hedge funds and other institutional investors. The Fed is trying hard to rescue the balance sheets of their Wall Street buddies, as I wrote in The Moral Hazard Club-How Do I Get In?, but the Fed itself is running out of options, not to mention capital. Even Uncle Sam is doing its best to prop up the economy sending out $125 billion of checks for folks to go out and consume more "stuff."

Could this have an adrenaline-like effect on the economy? Of course. But if you were an employer, would you add temporary workers or full-time workers to handle the consumers that will likely show up in droves to buy Macs, plasma TVs and a Wii? I, for one, would hire temporary workers and offer free check cashing (Wal-Mart is doing this) because at the end of the day, what remains from the rampant money growth is debt. And debt must be serviced, repaid, refinanced or go into default.

This amount of stimulus shouldn’t be a surprise in an election year. I have been a student of cycles for years, particularly the Presidential Cycle. The last two years of Presidential Cycles have been notoriously known for being great for stocks as monetary stimulus is applied to the economy in the those years in an effort for first-term Presidents to get re-elected and lame-duck Presidents to help their party get re-elected and to attain some sort of a positive legacy.

There was a wonderful study done by Professor Marshall D. Nickels of Pepperdine University that proves the theory which I will highlight below. Basically, the theory says to avoid stocks for the first 22 months of the Presidential Cycle and hold them for the last 26 months.

Pepperdine Study-Presidential Cycles and Equity Returns

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The Bubble Time Line

As I have stated, we have experienced the boom and bust of at least two major asset bubbles in the U.S. in just 12 years.

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