Why have we come back to the USA? For 15 years, the children followed
us. Now, we will follow them.
One of the surprises of advanced parenthood is how involved we still
are in the lives of our children. We thought they would leave home and
that would be the end of it. The nest would be empty. Instead, it has
merely changed…from a house to a hotel. They come. They go. They need
some advice. (But they don’t want suggestions.) They need help with
this. They could use a hand with that. They have something to pick
up…something to drop off. They wonder what happened to their leather
coats. They ask Dad to look over a contract. They want to tell Mom
about something personal.
Not that we’re complaining. Au contraire, we’re delighted. We’re just
surprised. Then again, we are easily surprised. We are surprised that a
sickly economy seems so healthy to so many people. And we are doubly
surprised that the world’s most indebted nation pays less than 4%
interest to borrow money for ten years.
Of course, surprises, by their very nature, are fleeting. And we would
imagine that the surprisingly low rates of interest the US Treasury
pays to borrow money will come to an end…sometime during the next
For those readers who neglected to tune in on Monday, we announced our
new Trade of the Decade: Sell Treasury bonds, buy Japanese stocks.
Since we announced our trade we’ve gotten a number of responses. Not
much argument with selling Treasury bonds. Although Richard Koo
disagrees. He thinks the Treasury market will hold up, as it did in
Japan. But our guess is that Treasuries are living on borrowed time
(not to mention borrowed money) in BOTH the US and Japan.
Most of the response came in regard to our long side recommendation:
buy Japanese stocks. Few approved. So we were feeling lonely and
isolated…just the way we like to feel…until we got this from Byron
Wein. One of his surprising predictions for 2010:
Japan stands out as the best performing major industrialized market in
the world as its currency weakens and its exports improve. Investors
focus on the attractive valuations of dozens of medium sized companies
in a market selling at one quarter of its 1989 high. The Nikkei 225
rises above 12,000.
We did our part. If the US economy remains in a slump, it’s not our
fault. If Detroit can’t make a profit, it’s not because of us. We went
out and bought a truck. We contributed to the economy. We added demand.
The Ford F-150 is a nice truck. Comfortable. Smooth. Quiet. It’s
probably a difficult export item. It’s too big for most foreign
markets, where people are more concerned with fuel economy and have
smaller parking places.
GM reports that its sales to China are rising sharply, but it’s hard to
imagine much demand for the F-150 in China. Smaller, lighter, more
economical and cheaper trucks are available.
But your editor is in the USA now. He has a right to use all the gas he
wants – at half the price of gas in Europe. It’s in the constitution
somewhere. Besides, it’s been so cold around here he figures the
atmosphere must need a little more CO2; the greenhouse effect isn’t as
effective as people seem to think. But here in Baltimore it is warm
compared to many other areas. The Des Moines paper says it is “30
degrees below normal.” Seoul, South Korea, just got the most snow it
has had in 70 years.
Enough of that… Markets and Money is about money. And we’re on the
If you read the papers you’re likely to think that the recession is
over…we’re in full recovery mode…with rising sales, rising
production, and rising prices. This year is going to be a good one for
stocks…and the US economy is coming back stronger than expected.
Is it true?
Well, it’s sort of true. The recession is over…the depression
continues. As we keep saying, if you’re going to make a royal mess of
things, you need taxpayer support. And with the unwitting and unwilling
support of millions of American taxpayers, the federal authorities are
busily making a bad situation worse.
Don’t believe us? No worries. Since everyone is so sure that the
economy is hunky dory, the burden of proof is on us to show that it is
First, we point out that the evidence is mixed. Here’s David Rosenberg,
on the ‘new normal:’
“…what was previously unthinkable suddenly becomes the ‘new normal’.
From March 1983 (when the Reagan-led economic expansion took hold)
through to September 2008 (when Lehman collapsed) we never once had a
month where US vehicle sales came in as low as 11 million units at an
annual rate. That is a span of 25 years.
“In yesterday’s WSJ, page B1, there is a huge article titled ‘Late
Surge in Car Sales Raises Hopes for 2009.’ This ‘surge’ seems to have
taken sales up to 11 million units in December (data out later today),
which would be up from 10.9 million in November. So here we are today,
and it is apparently good news that we had virtually no growth in sales
towards the end of the year even with dramatic incentives according to
the article, GM gave its dealers $7,000 for some of its models and that
we had 11 million units when the ‘old normal’ was 16 million units (not
to mention that 12 million is the cutoff for replacement demand – autos
are still being taken off the highways and driveways of America).”
“Personal Bankruptcy Filings Rising Fast,” says The Wall Street
Journal. That’s the way depressions work. It takes time for people to
run out of money and out of options. Then, they give up…admit
defeat…and get on with their lives.
That’s true for the housing market too. People hold on. They wait. They
hope prices will go up. And finally, they give up. That’s when prices
really go down. That hasn’t happened yet. The depression is still
young! David Rosenberg again:
“One would think that of all the sectors that should be benefiting from
all the government largesse it would be housing – but at 355k in
November, new home sales were down 11% MoM and the fifth lowest level
in 3 decades. It is now taking the builders a record 14 months to
locate a buyer upon completion of a unit. And the unsold inventory shot
back up to 7.9 months’ supply from 7.2 in October. Sales of completed
homes are still down 38% from what were already depressed levels of a
“Living on nothing but food stamps,” says a New York Times headline. A
record 39 million people are getting food stamps. For some of them,
that’s all they have. They’ve used up their unemployment compensations.
They’ve spent all their savings. They’ve mooched off of relatives and
friends. Now all they’ve got is the kindness of strangers who work for
the US federal government.
for Markets and Money