Outlook: 2010 Q4 update

First off I have to sort of apologize, I typically like to post these quarterlies once the inflation data comes out about mid-month, but well the computer went down due to a MS update, and then after fixing that, call it bad karma, but then one of the hard drives failed.  So one new computer later and we are back up and running. 

For those that have not heard the news, the recession (or the "Great Recession") is over.  Yeap, ended in June of 2009 in case you had not noticed.  So you should feel better now.  Everything is fine!

Unemployment. Still trending down, and at a ever so slow pace.  Keep in mind the government has pumped trillions of dollars into the economy and our net takeaway has not amounted to much.  With QE2 now I now think that this number slides sideways for some time to come. 

All we did was track sideways for the quarter with regards to inflation, and that should be troubling.  With all of the easing, printing, and low interest rates, one would think the Federal Reserve Bank leadership would begin to scratch their heads and ask, why is this not behaving right?  Either way, I am still happy with the trend, might not make it to zero by years end, but it is unlikely it will be in the "comfort zone" 2-3% prescribed by the Fed.

Amazing is the only word for the Dow, just peaking over the April 2010 high.  I will blame it on QE2 but it is only partially that.  We keep debasing the dollar in a lame effort to save our spending "fix" and when I say fix, I mean like a fix a junky gets while doing drugs.  The Dow continues to be a precarious spot, and I am now looking to go short the market, so that should tell you where I think we are headed.

To infinity and beyond!!!  Yeap, there is no stopping gold.  I am going to see if I can find a chart for oil when that peaked and compare, I suspect we will see a similar thing, but in the mean time, I am not touching this one, no one trading this is at all rational.  Why, this trade depends on run away inflation (look at the chart above) or a debased dollar.  I will grant you partial points on the debasing argument, but we are looking at ~60% increase in value of gold.  The dollar has not lost all that much value, maybe and I am shooting from the hip, but maybe 10%. 

I will be a bit off on the national debt for the end of the year, I expected at this time a 2nd round of stimulus, and instead we got a 2nd round of Quantitative Easing.  Opps.  So you will see my prediction accelerate upwards a bit faster then will actually result.  Either way, each American now owes about $44,000 or, better put, each tax payer owes $124,000.  If that is not bad enough, some states are in dire fiscal situations and have stopped paying bills,and it is not California this time.  Pulling some data from http://www.usdebtclock.org on the states, per citizen here are the top 10 states that owe the most

State Debt per citizen (ten most)

New York	$16,463
Massachusetts	$16,260
Alaska	$16,105
Colorado	$14,790
Connecticut	$14,693
California	$13,201
Washington	$13,170
Texas	$13,140
Kentucky	$12,473
Illinois	$12,101

Well with regards to the problems in other countries, the US is not all that bad off (yet).  Greece's spread soared to the previous high, and then relaxed (I cannot recall the action, I think it was the EU again), but as of late they have started their trek up.  The real worry is Ireland, and then Portugal.  Ireland announced massive cuts today in the hopes of staving off EU intervention, but once these cuts are realized, expect rioting just the same as is occurring in Greece.

Not much new here, consumers continue to shed debt while refusing to take on new debt.  One word for it, Deflation. 

Stimulus is over now, so time to wait and confirm what is about to happen, which will be a sales slump and price slashing.  It will take a couple of months for the data to come in right now is for September, so the next update should show a truer picture. 

Folks are now starting to get a tad bit motivated, but still too early to tell.  The next 3 months will be telling.  This will probably wake up the stock market from its rosy dream, so I am not too worried.  I seriously doubt with a Republican house, that there will be any more stimulus for the housing market.

The FDIC continues to shutter banks, last report was 96, and now we are one shy of matching last years total of 140 banks. 

The erosion of the economy continues, there is next to nothing good to report, maybe you can take stock in the GDP report, but that was likely propped up with stimulus, and now with a divided congress, nothing is going to happen.  So that leaves the Federal reserve out of the game (ok, QE2 but really how much impact will $0.9 Trillion have given what we are facing), and now the medics are carrying the government off the field.  Who will step in next time?

One last note, some of the graphs (namely the unemployment) will be updated in the next posting with newly revised forecasts.  It is all a learning experience, and so time to fix some of the mistakes.

Patrick