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Buzz & Banter


While Greenspan is pumping liquidity into the system, I am not so sure it isn't working. The liquidity has enabled the economy to "hold in there" when all things being equal it would have normally tanked with the lack of pricing power and excess capacity. Maybe the liquidity that hasn't appeared to have worked has cause stability of some kind that would allow enough time for the economic "bubble" excesses to be slowly unwound and set the stage for more sustainable economic growth.

Clearly, not all is perfect in the economy, corporate earnings world or financial markets, but has the stability and liquidity bought all the above enough time? For the purpose of perspective, the S&P 500 is up huge from the low, but at the same price as a year ago - yet the economy has moved forward (albeit at a sub par rate) during that time period. That is a year of no stock gain or loss with more cost cutting and balance sheet improvement.

Scott is right...there is a bet happening here, but in the transition or good enough quarter that I have been talking, there seems to be the same need to bet on big downside as there is to bet on big upside for the time being - and my view is that need is minimal. The markets normally give a heads up that something is wrong and people usually ignore it. So far I have yet to see that heads up that would be ignored.

Make no mistake, I do not believe stocks are cheap and to some extent I ultimately could agree with Scott's earlier point. My problem is in the current market environment, I would view wild speculation as 30x forward earnings on peak numbers vs. 20x forward earnings on earnings bouncing along the bottom with dramatic margin improvement on any meaningful pickup in final demand.
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