Eight Things That Should Worry Americans
As a country, what are we now?
1. The stock market goes up when the US dollar gets skewered and vice versa. Historically, there's no LT relationship between the two, but now they move regularly together and the USD is usually the major issue defining the tone of the tape on any given day. The chart of S&P in gold terms is particularly telling about the lack of validity to this rally.
2. Chrysler is offering 0% financing/$4,000 cash-back deals. GMAC went back to the government for another $2.5 billion to $5 billion bailout. Now we have US-owned Chrysler offering unprofitable incentives to drive sales (can GM be far behind?). After everything that's gone down in the auto sector, absolutely nothing has changed. Oh, by the way, the US government has now admitted the US taxpayer will basically lose most of the money used to bailout GM and Chrysler.
3. For everything the US government did to get the economy back on track, the best real GDP print they could get (so far) was 2.8%. Does anyone realize -- given the number of people unemployed and new entrants to the workforce -- that the employment situation in the US can not materially improve unless real GDP stays well above 3% for an extended period of time? Monthly job gains will have to exceed 200,000 per month every month for the next three years to get the unemployment rate back to down to around 7%. We couldn't get GDP above 3% when they threw everything but the kitchen sink at it. Such is the fate of a deleveraging economy.
4. Short-term-rate Treasury yields recently went negative again, gold was breaking out to new highs, and 10-year is at 3.3% in the face of massive amounts of new issuance!? We're supposed to be in an economic recovery. These aren't signs of a healthy recovery but rather of scared investors.
5. The credit default swaps on the debt of major countries have raced higher recently. The UK is getting threatened with a downgrade. The cost of insuring against Japanese default has doubled. The situation with Greece and some Eastern European debt markets remains problematic. Dubai was a temporary negative surprise (but not to Dubai stock-market participants), but we've seen small debt surprises morph into big problems. How quickly the market seems to be dismissing the impact of sovereign debt crises. Does anyone remember Russia default?
6. The UK government admits a year later that it secretly propped up Royal Bank of Scotland (RBS) and Heritage Financial (HBOS) with $61 billion to save them from imploding. Boy, good thing here in the West we live in free markets where information flow is transparent. Makes their ban on short-selling at the height of the crisis more understandable now. I wonder, had the world taken some very tough medicine starting with Lehman, if we'd be sitting here today better off. Instead, banks fail every weekend, Obama is lining up another stimulus plan, and the debt situation is still a major problem.
7. What if the USD declines to the point where the Fed has to raise rates earlier than they want to stop the bleeding? Our major lenders could begin to squeal before too long and dictate policy.
8. Given our ballooning deficit and magnitude of our national debt problem, will the US have to pull some type of reverse Louisiana Purchase asset sale in the future to raise money to pay off our debts? As an aside, I wonder what the state of France's financial situation was in the early 1800s such that they did that insane deal with Thomas Jefferson. Not only did the guy write the Declaration of Independence, he pulled off the largest land steal of all time. We paid $11.25 million and canceled French debt of $3.75 million for total cost of $15 million to double the size of America! That was when America was young and bold. What are we now?
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