US Equity markets continue to make the sky is black crowd look foolish. However ridiculous the 'reasons' are getting for the continued momentum (LTRO, QE, multiple expansion, fund flows, generational opportunity, etc), there are a few things the economist in me would like to point out.
- Spain is the new Greece. Portugal is going to debate this, as they're banged up, but Spain is a unique disaster. The major issue is that no one cares about them. Sans development and tourism, which are in soliatry for a decade or so, you've got a paper bag full of water. Take a look thru the headlines in April of 2010, things were contained. We got confirmation Spain is a bag of .... water ...today.
- Europe is in trouble. Recession, solvency, currency wars - don't be surprised if it happens (in that order) when 'risk' appears out of nowhere. Again.
- China. You saw this, right? So the US story in 2005-2007 was, housing is going to collapse - but until it does ride that pig. China is the same story today. Look, this isn't very difficult. First, their banks are raising equity capital (the same path our banks went down) after reporting massive loan losses. Will this issue suddenly vaporize? No. This is not unique to one bank. Why?
Chinese banks have been on a lending spree since November 2008 when Beijing unveiled its 4 trillion yuan ($630 billion) stimulus package to rescue the economy from the financial crisis that began that year. The stimulus package led to an explosion in credit to local governments and property developers.
However, as the credit boom ended, defaults began to rise. Bad loans at China's five largest banks advanced to 299.6 billion yuan as of Dec. 31, 2011, compared with 287.9 billion yuan at the end of September, data from China Banking Regulatory Commission showed. Link
- Generational Opportunities. Finally. Please - run, hide, and bring a taser when you hear about a generational opportunity to do anything. This one wasn't. This one isn't. These risk-less calls get a lot of attention when they work out - but there are hundreds of them made by people who don't offer any edge into what will develop - just the power to make things wiggle when they report the news. Don't flatter yourself, there are people far smarter than you taking the other side or passing. Use the analogy of a gorgeous woman in Vegas walking up to you (and your Reebok track suit) at 3 AM. Run. Muppet. Guess what? The NASDAQ will get back to 4,500 - but it won't be on the time frame you'd anticipate. Probably not the generation you expect either. It certainly won't happen when a guy on mutual fund TV tells you about a guy - who made a call - that stocks might go up - more.