Saturday, August 19, 2006

Things that make you go "Hmmmm"....

After such a nice run (since June/July lows), I've seen a stack of articles and reports predicting:

  • Fourth quarter rally (they vary from the "run of the mill" to the "blast off" variety)
  • New all time highs for the major indexes
  • Rebound in home sales/home prices
  • Double digit earnings growth for 2007
  • Leadership in large caps leading us higher
  • Resurgence in small caps leading us higher
  • Price to Earnings ratios "will expand from current 15X's to 16.9X's"...

...you get the idea.

Let's look at the foundation this future rally might be built upon:

  • 17 consecutive quarters of double digit earnings growth
  • Record Fed/State/Local tax receipts (considered a good measure of the total economy)
  • Risk premia and credit spreads razor thin; volatility indexes at multi-year lows
  • Unemployment at 4.8%
  • Home ownership rates (a measure of economic health) highest in history
  • High rates of productivity keeping inflation and interest rates relatively low

Considering that's just a representative list, I'd have to say the bulls have a very strong foundation.

But you know... there's one question that keeps nagging at me:

If everything is so fantastic, then why are we still deficit spending in this country like a bunch of drunk sailors?

Not just the Federal government, but individually as well?

Think about it: I'm not asking why we can't seem to "get ahead"... I'm asking why we can't even slow down!

More importantly, if we can't keep up with our spending during the best economic conditions in the history of the planet, then when will we ever be able to pay off our debt?

Note: I'm not even touching the "offbudget" Iraq/Afghanistan/Katrina spending, nor the Social Security/Medicare/Pension unfunded liabilities.

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