No Surprises for Ben Yet

The market is more or less tracking the scenario we outlined in our September 10th post.  Ben is in the catbird seat.  Stocks, gold,  and commodities are rising.  Interest rates are going sideways to up.  Apparently from the employment numbers this morning Obama had already turned around employment.  Now what Ben ?

Since everyone is now immersed in Politics, mass communication and the nations mentor Fox News have made everyone an expert, I have immersed myself in more in-depth analysis.  Last week I mentioned that I had read about the Democrat’s dilemma in the book “Herding Donkeys” by Ari Berman.  This week I am reading about the Republican’s dilemma in the book “The Death of Conservatism” by Sam Tanenhaus.  Next week I plan to read the third book of the trilogy, “The Practical Progressive” by Erica Payne.  At that point I will be able to complete my plan for the country.  Just kidding, but I will have more of an understanding than if I had been watching cable TV with the hotheads at MSNBC, FOX, CNBC, and CNN.  Bloomberg seems to be the only bastion of reason these days, maybe he should be the next President or if not him, Jon Stewart.

On to the situation at hand.  Maybe we should take a look at where the economy is and next week look at the political forces that are trying to shape it moving forward.

First, the Core Problem. 

We all know that economic polices since 1982 have created a number of bubbles.  The Stock Market Bubble that was punctured in 2000 affected owners of stock, so the general population was relatively less affected (other than those people who watch CNBC and are still trying to get back to even). 

The next set of bubbles created to make the country feel everything was OK again was the real estate/housing bubble and the commodity bubble (oil at $ 150 a barrel is a good example).  These bubbles affected everyone with high gas prices putting a burden on all.   

Housing prices in 2007 reached a level where they were 46 percent above trend.  Therein lies the crux of the problem that the country is facing today.  The price at 46 percent above trend was basically 46 percent thin air, and financing thin air for thirty years is a drag.  If you have to sell your house, many have found that thin air was a difficult sell, it is free everywhere except in Los Angeles.  This has led to the foreclosure issue and the fact that the average consumer has a negative net worth.  This is the deficit that no one talked about in the last election, yet it is the biggest problem for the economy over the next two years as the goal of the fed is renewed consumerism.

In the light of the issue listed above, lets look at Ben’s solution which is basically a return to the infamous “Trickle Down” program instituted by Reagan in the 80’s. Ben is going to inflate stocks and commodities and this will hopefully create jobs as stock investors and commodity producers start hiring people to count their money.  I don’t think it is going to work.  One thing that might work is that for everyone that still has a house, values should bounce up a bit and everyone who sells their house quickly should benefit.  No jobs for new construction though.

Keep in mind as I mentioned yesterday, interest rates are your Big Red Indicator.  The big double top in T-Bonds formed between 8/30/10 and 10/15/10 is something to watch closely.  Higher interest rates will make things interesting.

If I was wrong on any of my three year forecasts yesterday, it was the dollar.  If interest rates start rising the dollar will be a beneficiary.

 See you next week.