Skip to content




Summary of Current Environment

I have gotten some feedback from many individuals about the negative attitude that I have towards the markets, in particular the equity markets going forward.  I do not want to be viewed as a perma-bear or a consistently negative person.  My main reason for having a blog is to try to relay what I see in the markets in the easiest terms possible while being open to conversation and debate.  I had previously addressed the reasons for the credit crisis in the post “Financial Weapons of Mass Destruction and the Credit Crisis“, but let’s just summarize where we are NOW.

So no matter what the stock market is doing, what truly matters?  What should we be focused on: Economic growth, low tax rates, low unemployment, manageable debt burdens, low inflation, high innovation, strong property and IP rights.

Now let’s focus on what has derailed:

Increases in GDP have come not from true economic growth, but a growing debt burden

Increases in GDP have come not from true economic growth, but a growing debt burden

Debt has skyrocketed in the public and private arena since the 1980’s.  The growth in debt has been fueled by the US dollar being the world reserve currency which has allowed the government and private individuals to borrow their way to prosperity.  The growth in household debt to propagate a consumer culture and import society has been the most spectacular.  This is unsustainable.  Whether we are able to keep this ball rolling for another few years is immaterial.  The fact is that whether slowly or quickly, the whole thing needs to be corrected.  This could be through years of slow growth and depreciating assets or a quick collapse of the dollar and effective default on debts(maybe even through equitizing debt).

Now what about the sustainability of the credit bubble in which we continue growing through ever increasing amounts of debt:

Let's first see if foreclosures go down this fall and housing prices indeed bottom

Let's first see if foreclosures go down this fall and housing prices indeed bottom

I might be willing to wager quite a bit that bankruptcies will go up considering the foreclosures and debt burden...

I might be willing to wager quite a bit that bankruptcies will go up considering the foreclosures and debt burden...

So look at the simple figures above and tell me what they mean to you…  I would never suggest that the market cannot move further than rationally possible, but it is hard for me to believe that corporations will increase revenues significantly and continue to grow at a decent pace with 10% unemployment, rising foreclosures, an incredible debt burden and rising bankruptcies (corporate and personal).

Nothing has changed since last year except that the government has transferred liabilities from bank balance sheets to the government balance sheet…and ultimately, who fuels the government?  The consumer/tax-payer.  I still see quite a few weak links in the chain and that’s where my pessimism comes from.

Be Sociable, Share!

Posted in Economics, Educational, Markets, Politics.

Tagged with , , , , , , , .


One Response

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.

Continuing the Discussion

  1. Why Not Walk Away From Your Mortgage? | SurlyTrader linked to this post on January 31, 2011

    […] laid out how the actions of the government and the federal reserve have only fueled the bubbles and enslaved us to debt.  The sad follow up is:  Have we learned […]



Some HTML is OK

or, reply to this post via trackback.



Get Adobe Flash player
Copyright © 2009-2013 SurlyTrader DISCLAIMER The commentary on this blog is not meant to be taken as an investment advice. The author is not a registered investment adviser. There is no substitute for your own due diligence. Please be aware that investing is inherently a risky business and if you chose to follow any of the advice on this site, then you are accepting the risks associated with that investment. The Author may have also taken positions in the stocks or investments that are being discussed and the author may change his position at any time without warning.

Yellow Pages for USA and Canada SurlyTrader - Blogged

ypblogs.com