The worst is over. Consumer confidence has turned, they are buying now. Properties have bottomed, price is recovering. Banks are making money, the system is stabilised. What else do you need to hear? Corporate earnings improves, etc.
Some says Peter Schiff, Jim Rogers, Marc Faber and other doomist like Robert Prechter, Harry Dent, Gary Shilling, and Martin Weiss, they are all wrong. US is neither going into hyperinflation depression or deflationary depression, the economy is in Goldilocks.
And don't forget. CNBC, CNN, Fox, Bloomberg, all the financial news are merely for entertainments, period. Just treat them as another source of entertainment, nothing more. Jim Rogers once said, if you listen to CNBC and follow their investment advice, you will eventually lose your millions. I couldn't agree more.
MyView
Just treat US as a balance sheet on its own, the debt is 380% bigger than the GDP. The debt is about USD58 trillion vs GDP of USD14 trillion.
On top of the interest bearing debt, how about commitment for social care and social medic, another USD60 trillion.
What about derivatives bet of USD200 trillion.
Just assume USA is a company with such a huge debt - 58+60+200 = USD 318 trillion vs GDP of USD14 trillion.
It doesn't take a genious to know that the earnings in the Corporate is mainly contributed by debt. Just use earning growth and divided by debt growth over the last 20 years and you will realised, it takes more debt to make an EPS than many years ago. So the debt driven consumptions need to be normalised, say instead of 70% of GDP how about, for discussion sake, dropped to 60%, consumption will drop from USD9.8 trillion to USD8.4 trillion or a USD1.2 trillion drop in consumption - what is this impact on the earnings of corporate.
Not to mention, banks cannot continue to lend as the credit market is shrinking, i.e. the deleveraging not only in the mortgage markets, what about credit card market, what about student loan, and others. What about the derivatives (empty boxes) which were dumped to insurance co, pension funds, financial institutions. So with not much growth in credit in the foreseeable future, what will happen to the corporate earnings, which are highly relying on debt to grow.
In short, this following must happen before the US is rebuild:
- reduction in debt
- reduction in consumptions or spending
- reduction in derivatives
There is no way out of this than to bit the bullet, and due to that you will see the entire economy going into a spin for a while. The current bailout and stimulus merely delay the reckoning and also reflate a bigger bubble. The US economy will suffer as shown in the picture above. Actually the above gurus are realistic, not pessimistic as most would like to admit.
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