I got this email the other day:
“Just saw you on CNBC. Shocked! I thought for sure I read you had hung yourself.
Well, now I have a new wish for Christmas!”
It was signed email@example.com and he was referring to a recent TV appearance I made where I was bullish on the economy in 2012.
I don’t know a firstname.lastname@example.org so it was effectively anonymous. This is why the Internet is great. I am particularly ugly when you see me on TV. Everyone is very beautiful on TV. They always try to put makeup on me or make me brush my hair or tuck my shirt in. Ugh. Are you my mommy? I also had particularly big headsets on. Like Keith Partridge in the Partridge Family. “I Think I Love You”. You know the song.
So its perfectly reasonable that an anonymous person from Washington DC (I tracked his IP address) would send me that note. He just saw an ugly person on TV. Kill him! It’s a natural survival instinct for the species. And now, with the Internet, he can act on this natural genetic instinct and send an anonymous email message. I’m in favor of that.
I tried to think what else could upset him. Well a lot of people get upset that I’m very bullish for 2012. A lot of people, both citizens and the warlords in our own government, want America, capitalism, the Internet, the economy, all of our established insitutions, to go down in flames. I don’t know why they want this. They think it will be fun. Like we’ll party like it’s 1999. That sort of thing.
You can stop reading here if this makes you irrationally angry for some reason.
I’m giving you one more chance to go to a different page. If you go to the top of this page and search on “prostitutes” you will find many fun stories.
Home sales: Housing prices still stink. Nobody should ever buy a home again, in my opinion. The myth of the white picket fence was invented by a trillion dollar mortgage industry powered by an over-accelerated Federal Reserve. Prices are down 2.8% from a year ago. But there’s very good news. Inventories are at the lowest levels since 1963. And at current demand, months of inventory on the market are at six months, the lowest since 2006. In fact, home sales have been up considerably the past few months. Guess what happens in any market when supply goes down and demand goes up: prices go up.
Corporate profits are at an all time high. This is for three reasons. All the companies fired people two years ago. Demand is coming back (see below), and the Internet is actually allowing companies to do things for free that they used to use expensive people for. What happens when corporate profits are at an all time high?
Cash in the bank is at an all time high: Non-banks in the S&P 500 have two trillion cash in the bank, the highest levels ever. This cash is sitting around doing nothing. Do you know what happens when cash is sitting around doing nothing?
Announced Stock Buybacks are at an all time high: Since 1990 you know who the biggest buyers of stocks are? It’s not mutual funds or retail investors. It’s other companies by a factor of 4:1. Through buybacks and mergers. Announced buybacks for 2012 has hit over $1.1 trillion, the first time this number has breached a trillion. Oh, and guess what, the number of shares outstanding has now gone down for three years in a row, for the first time since 1990. You know what happens in any market when demand goes up (the stock buyback announcements) and supply goes down? See above.
Consumer spending is up at an all time high. How can this be? Isn’t unemployment still at 8.6%. Yes. But: A) unemployment is 1.2% lower than it was a year ago. And B) many of the unemployed were in lower paying jobs. I’m just the messenger here but it’s the truth. Personal incomes are actually UP 4% over the past year. Not only that but temp jobs are up and the average hourly work week is up. Which means full time employment is going to continue to grow, as it has been all year.
But, you can ask: isn’t this the same problem we had before? People spend, spend, spend, and then owe, owe, owe?
Household debt obligations are the lowest since 1993. Mortgages, rents, car loans/leases and other debt services added together divided by income after taxes is the lowest since 1993.
But what about Europe? I know this blog might have European readers. In fact, we might even have readers from Greece. Hello out there! But do you really think a beach resort in the Mediterranean is going to have an effect on the US economy? Greece’s economy to the Eurozone is equivalent to Rhode Island to the US economy. I live 40 minutes from Rhode Island and I don’t think I’ve ever even set foot in that state.
Well, what about Italy and, god forbid, France! Voulez Vouz Coucher!?
History Lesson: 1981: The top 8 US banks were 260% exposed (through leverage it goes higher than 100%) to South America in 1981. All of South America defaulted. Nobody in Europe has defaulted. We had to do massive bailouts combined with down on our knees old-fashioned prayer and still we had a 20 year stock market boom. Meanwhile, the top 5 US banks (mergers) are 8% exposed to Europe and there’s been no defaults.
So why are we so worried? I bring this up on TV and the response is always: you might be right, James, but what about “investor psychology” of these events. No problem! TURN OFF THE TV. These are not the droids you are looking for. Recession news gets a lot more press (and money) than good news. We have this biological instinct to protect the places where we pee regularly. So if there’s going to be news that’s going to upset these sacred peeing grounds then that news drives ratings. I make it a habit to avoid all news.
Bank cash: The Federal Reserve printed up $1.6 trillion in cash for “QE2”. Guess what. Bank reserves increased by $1.6 trilion in cash. They haven’t spent the money! The Federal Reserve DID NOT NEED TO PRINT THAT MONEY. But the banks will spend it. It typically takes 6-18 months for quantitative easing to have an effect on the economy. Nobody tells you that in the news. Guess when the last dollar of QE2 was printed? Six months ago. The only issue with all this is that the accelerator is going to hit too fast. The Federal Reserve should NEVER have done QE2. The accelerator is going to be so fast only the nimble will be able to keep up with it and the middle class will once again be left behind while the banks and the people who “Occupy Money” will win. While the short-term might appear to stimulating it will be stimulating like a roller coaster. The Federal Reserve needs to tell it’s employees to go on a vacation for a decade or so.
More on Stocks: The S&P 500 trades for just 13 times 2011 earnings versus the historical average of 15 times. Given that earnings will probably continue to improve, the market could move back to the historical average. If you throw in that interest rates are at the lowest levels since 1960 (important since you compare the relative safety of investments by looking at interest rates), the market is at its lowest level since 1960. Going back to historical averages when you take into account interest rates could cause the Dow to more than double (Source: Brian Wesbury at First Trust Portfolios.) If rates go up, as expected, we can still see a 40-50% quick move up from here.
But aren’t things overvalued? AAPL is at less than 10 times next year’s earnings compared to a historical average of around 20. Should AAPL, which grew it’s earnings 100% this past year, be valued like an electric utility company? I can give more examples (CSCO, MSFT, INTC, all growing, all equally cheap) but AAPL is good enough. (See, “Why Apple Will be the World’s First Trillion Dollar Company“)
Technology. Two years ago I never even heard of an iPad. I had nothing stored in the cloud. I had a dumb phone instead of a smart phone. Fracking was a pipe dream and is going to shortly make the US the largest producer of energy in the world, beating the Middle East. Biotech and genetic diagnostics continue to make astounding improvements. Facebook has 800 million users. The fastest growing company in history (in revenues), Groupon, started in just 2008. And the more ideas we have, the more ideas mate with each other and create new generations of ideas. Those grow and provide jobs, and lead to venture capital, and IPOs, etc.
Remember 2000 when everyone said, “man, I wish I knew a boom was coming in 1996.” Well, here we are again.
By the way, in the title I mentioned this was the last death threat I got in 2011.
Here is the first death threat I got:
““I hop that your foolesh feels relizes that peapl in indea are dieing in indea just to go to collige and you have the odasity to tell the world its a horribil thing . Ill bet that both your douters well think your a complet ass hole when they get older. You making the Us look like a ovly confedent jackass of a country. Pray that i dont find you becase i well kill you with no mercecy then devour your body. I shal never messege you agean Nor shal i reply….we speak no more.”
You have to love the Internet. I love how I can make friends like Taylor Northcutt (the author of the above) without having to meet face to face. What was his problem? He didn’t like my post: “10 Reasons Parents Should Never Send Their Kids to College”?
We all have opinions. We all want to argue. My main goal for 2012: reduce the things I get anxious about, increase the things I feel contentment about.
And guess what – you might hate me for that. Even want to kill me! I hope not, though, because 2012 can also be great for you if you take advantage of the opportunities. There’s a few hours left in 2011 Good riddance! Time to Occupy 2012.
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