Friday, August 5, 2011

Post-traumatic stress and too many back seat drivers


Looks like today's market decline was the reaction to two months of warnings and fear mongering by talking heads and politicians – 'Chicken Littles' is what Don Campbell calls them. With the internet spreading everyone's opinion of recent 'on-goings' we seem to have become a society of back seat drivers (I guess I better look in the mirror). The economic performance is disappointing and many conclude that we're in for yet another recession. So run for the hills!

I came across this chart by the Alberta Treasury Branches or ATB Financial published in their Daily Economic Comment – American Personal Consumption Expenditures. Economists seem never to be happy. First they fret over expanding consumer debt and mortgage debt. They tell everyone to cut back. Then the governments are told to bail out the banks with their bad debts and then the economic gentlemen turn around and state that governments should reduce their 'excessive spending' because their ever increasing debt load is a threat to the economy. Barely is the debt ceiling in place or these oh-so-knowledgeable economists feel that all this austerity will reduce spending (duuuh!) which will reduce economic growth! After weeks of browbeating the U.S. public about rising debt and demanding a higher savings rate rather than consumption, those same forecasters are shocked that Americans have reduced spending and that over the last couple of months the public has increased its savings rate from 5% to 5.4%. "Oh, ahhh!", the experts whine you should save more but… you should spend more too because otherwise GDP growth stalls. Lately, large companies have been raking in cash by the shovel full. Yet, they are not hiring, because they are scared by all the economic whining; who is going to hire in these uncertain times when we're not even sure about how much U.S. corporate taxes are? If you don't hire people, they don't earn wages and these people cannot go on spending AND they have no money to save and reduce debt. And so on and so on.

 Are we truly amazed that spending over the last quarter plateaued and that GDP growth has slowed and that we don't get new jobs? "Not me", says the cat; "Not me", says this author, but our bright backseat driving Chicken Littles (CLs) are 'shocked' and the stock market tanks big time. Yes we have seen the messy U.S. government system in action dealing with cost cutting and debt ceilings. It was not pretty and … this week's stock market weakness may be just a case of 'post-traumatic stress'. The economy has not been overheating; the debt issues in Europe and North America are being addressed; may be not as fast and painless as the CLs would like; but it is under way. Corporate profits have once again surprised the CLs on the upside and the stock market is outright cheap. So is this the time for a crash; for a recession or is this a crisis of confidence? My guess is that we're just suffering from post-traumatic stress and too many economic back seat drivers.

Thank the lord that I invest for the long haul and that I don't care about the precise cause of this latest kerfuffle. Asset prices are low though. I am seeing buying opportunities that likely will pan out in the future. Yes, prices may fall even more; but then they may rise as rapidly as they fell. Who knows, but my money is itching in my pocket! Personally I don't think we're ready for yet another recession; but just in case there is one coming only buy in small chunks as discussed in my previous post because the price is right. Stay cool; buy some of those spiders who are getting cheaper by the day.

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