Tuesday, April 26, 2011

The Revenge Of The Giant Face

Douglas Kass is a financial / investment advisor who, between 2002-2007, was among the few who cried that the nation's economy was in danger of being devoured by Wolves in Sheep's clothing.

Barry Ritholtz, who was also making the same observations back in those long-ago times, quoted Kass today on his blog, The Big Picture (Paragraphing added):
In 2007 and early 2008, I warned that the impact of unregulated, unwieldy and unpriced derivatives plus a speculative blowoff in residential home prices around the world produced a toxic combination that would bring down stock markets and economies worldwide...

Let's now fast-forward to April 2011.

With every Treasury POMO and with every uptick in the world's stock markets, investors are building up their stock portfolios with a false sense of security as their optimism blossoms under the encouragement of the strongest of market trends...

In many ways, today's problems -- namely, structural unemployment, the screwflation of the middle class and fiscal imbalances (around the world) -- are even more serious and more difficult to resolve than its recent predecessors.

It is clear to this observer that the U.S. economy's forward momentum peaked in February as first-quarter 2011 growth, expected to be +3.5% 90 days ago, looks closer to +1.5% now.

Most notably, higher costs for life's necessities (food, gasoline, etc.) have begun to sap the purchasing power of an already vulnerable consumer. Meanwhile, home prices are exhibiting no signs of recovery and, arguably, have begun to experience a second dip.

In contrast to cash-rich large corporations, small businesses continue to suffer, as evidenced by low readings in confidence surveys. Domestic loan growth is still weak and our local and state governments are preparing for European-style austerity (along with the implementation of higher marginal tax rates).

Over there (in Europe), central banks are tightening, and austerity measures are being implemented. In Japan, the natural disaster has created dislocations and a material slowdown in growth. The Middle East remains a powder keg and a risk to worldwide growth. And even in China, growth is decelerating under the pressure of a series of tightenings aimed at lower inflation.

At best, subpar growth looms on the domestic economy's horizon; at worst, a double-dip is still possible...

It feels like deja vu all over again.
Read the full article here, if you have the spittle for it.