It's pretty obvious that the bounce in the market is more than most people expected. A 50% increase over the lows, has helped many of the people who were "trapped" with investments they couldn't get out of without paying taxes.
Here are a few things to remember before "irrational exuberance" sets in again, brought to you by Gloomy Gus.
- the price/earnings ratio is very high (compared to stable market periods) at 18.6
- most reporting companies admit that current profits are based on severe cost cutting, to include restrictions on forward looking plans
- market volume is very low, reflecting that most trading is coming from brokers.. retail investors still on the sidelines
- housing, jobs, have not reach "lows". cheerleaders treating a slowing of losses are premature.
- the actual cost to the economy has not been tallied. spending continues unabated, with no indication of controls, any time soon.
- toxic assets have not been addressed, and proposed unwindings have failed miserably.
- second level housing repo's don't kick in until October, and commercial real estate foreclosures don't being until 2011.
- FDIC and PBGC reserves will both run out before the year is out, with no plans yet in place to handle this.
- there are no national studies that currently address the status of State and Local Community (city and town) budgets, and the loss of federal and local taxes is only beginning to be addressed (besides the high profile California, Michigan and Nevada problems).
Finally, and perhaps most importantly, whatever rebound the market has had, is coming from the Financial Sector. When one third of the economic positive activity is centered in the non-productive "money" part of the economy, it's a sign of serious GDP failure.
Gloomy Gus is now in the minority, as the vaunted Guru's like Nouriel Roubini and Paul Krugman have now equivocated, and are tiptoeing around the "cautiously optimistic" theme.
I'd like to believe that the silver lining is shining through, and I won't mind being proved wrong, but FWIW, I intend to be very cautious with my own dwindling money supply. This despite the reminder that $100,000 invested in Citigroup on May 9, 2009, would be worth about $375,000 today.
One last point... When the economy does rebound, we're not out of the woods, because that will be the beginning of inflation.
This is just an opinion, which I would be happy to revise based on any reasonable data.
BTW... my bank made history on August 14, by being the biggest Bank Failure of the year... (sigh)
