The 2003-4 spike in revenues are due to consumers spending cheap money obtained from refi, credit cards, 0% financing, rebates… and government spending on defense and technology. The economy could keep going as the FED only rise short-term rate by 25 basis points--still considered cheap money since at 1.25%, financial institutions can still borrow money from the government better than FREE as the inflation is north of 3% Y-O-Y in June.
Now comes the bad news, June retail sales fall short of expectation, and consumer spending slowed in May. Consumers have pretty much spent all the credits they could obtain. The only thing left is waiting for the next elected office to approve more tax refunds, or hoping the real estate keep going higher, then use the home ATM. There is no hope in waiting for salary increase. I don’t see that coming anytime soon. The only people enjoying nice raises and sweet bonus are those who control the compensation committee: CEO, CFO, etc.
Is it time to say adios to the BULL?
If everyone in the universe already knows if the market goes down, it is going to be after the election, or historically election year brings slightly positive markets, then a contrarian would see this extreme one sided action as a chance to hedge against the market. Since everyone is already on one side of the boat, there is a higher probability that the next move is to the other side. Believe it or not, the best speculation in the markets is based on market psychology, not fundamentals or technicals.
I recommand reading the links on the Sir Templeton blog again.
posted by jason @ 10:35 PM
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