We should rally big time on either Monday or Tuesday of this week. As usual the Taiwan index is a good indicator as to which way the market is headed and according to today’s gains we are headed upwards with a nice rally or bull run.

These BS rallies are endless these days. We get bad news and we rally and then we get good news and we tank. Market shares and stocks only head in the direction the big guys want them to head whether it be in Dubai or in the US. They have all learned from each other in market manipulation. Facts and growth rates mean noting these days and neither do foreclosures and unemployment numbers.

I think professor Roubini is probably right in his forecast of no double dip, but with very weak growth of between 1 & 2 percent in the USA for years. The US government has pushed a huge amount of money into the economy. That spending is the only thing that prevented another Great Depression. Had the US government just sat back and let the chips fall where they may, the collapse of just AIG, would have destroyed the entire financial system of the developed world. The same would have happened if they had let Citi go belly up, or Northern Rock in the UK.
The stock markets are very poor forecasters of the future economy. Think of 1929, 1999 or 2007. Everything was great back then, right? Emotion sets stock prices today, more than the ecomomic fundamentals. The stock market can go up, even with unemployment at 12%, because many S&P 500 companies make nearly half of their sales outside of the USA. Demand from China, Brazil and resource rich countries that sell their resources to low debt, growing countries, like China and Brazil, enable these companies to still make a profit even while growth in the USA, and the rest of the mature economies, remains weak. Demand from growth in places like China, Brazil, the MEPS (Middle East Petro States), Turkey, Southeast Asia, Australia, and Russia, is keeping the world economy from going into a double dip, at least for a now. Until the price of oil gets into the tripple digits, we should be able to keep our heads above water. But after around 2016, when the easy oil starts to run out, look out. Obviously, if China tanks, all markets will tank because it is now the second largest economy.
As far as Greenspan, didn’t he miss the building sub-prime bubble that his low interest rates helped create (Even I knew that such low rates would mess up something, I just wasn’t smart enough to figure out what that would be.). And doesn’t he still claim that he couldn’t have prevented the bubble, even if he had recognized it? The amazing thing is that people still listen to this guy. Since he is out of office, he should keep his mouth shut about the economy and enjoy his fat government pension, like the retired US Presidents do.
US real estate has further to fall. Even property values in the suburbs around New Orleans have recently started to fall. You can see the data on the front page at nola.com.us. of the 1 August edition. Naturally, my area didn’t fall, so I can’t get my real estate tax lowered, because it is based on fair market value. At least the plane spraying keeps the mosquitoes at bay, so I can use my new telescope.

The dip is coming.

This is as certain as night follows day. And this time the Governments that have been running the money printing presses on overtime will not have the stamina or the political will to pump the economy full of steroids again!!!

The last dose of quantitative easing was largely absorbed by the financial institutions to repair their shredded capital base. Little percolated down to the real economy and the double dip will show how ineffective the previous dose has been as far as healing the economy goes.

The good outcome will be that this time the Governments will be forced to address the real issues that ail the economies, instead of just bailing out the blundering greedy banks!

Good commentary, Peter. And interesting replies from Andy, Bill, and Prachish.

What Has Occurred in the USA:
Over the last 2 years, the US government has done absolutely nothing constructive to address the significant structural problems related to its economy. Sadly, the Obama administration’s policies (coupled with the FED’s $2 trillion in QE) have helped only the big banks, big businesses, and the wealthy, yet have made the economic situation much worse for most citizens (I’m ashamed to say that I was an Obama supporter).

Greenspan’s Comments on “Meet the Press”
Yesterday (01Aug) Greenspan made a rather startling “confession”, the implications of which were rather obvious to me. He said: “if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here.” My translation: in other words, the dual mandate of the FED (i.e. 1) to ensure stable inflation, and 2) to maximize employment) are not very important now, since the FED can’t achieve either of those mandates at this point in the game.
What IS important is for the FED to continue to rig the stock market as it has been doing until the public is convinced that the economy is OK (which the public damn well knows is NOT OK), and then decides to spend (which won’t happen).

What’s Happening in California:
Here in California, the housing situation is beginning to deteriorate once again. There is very little demand, except for trying to “get a bargain” via foreclosed properties, and the latest estimate is that home prices will dip another 5% to 10% between now and the end of 2010. The employment picture continues to be bleak, with no job creation drivers on the horizon. Meanwhile, retail sales are down while taxes continue to go up as the bankrupt state of California struggles with its very large deficits (38 other states are in a similar situation).
I suspect that California’s economy is similar in most other parts of the US economy; but since our news media is controlled from Washington, DC, we don’t get “real” news unless citizens surf the web for factual data.

Housing is a Large Determinant:
Since a strong housing market is a significant determinant of the overall economy, all of the available evidence suggests that Prachish is right. The coming “double dip” will be met with the FED’s QE2 ($5 trillion this time), which will ultimately bring the US to its knees by moving from the current deflationary environment to an inflationary one by the end of 2011 or by early 2012.

The Outlook for 2012:
It’s looking worse with each passing week.