Global Issue: The Economy * written by the Realist

The following is a post written by a friend, who concerns themselves with financial matters. As this post was not written by me, I will take no credit/blame/accolades from it. I merely wish to publish a friend's work. After reading it, I deemed that it isn't too technical for us laymen. So, without further ado...


Up the hill and through the woods to Bernanke’s house we go!

All I have been hearing for the past several months is how bad the economy is. Person upon person, economists, analysts, portfolio managers alike, have been bemoaning the stock market and how it has bounced too high after the recessionary low in the beginning of March. Dead cat bounce, dead cat bounce echoes through the grand ballrooms of old class money men whose noses are too far up their own asses to realize what has just happened. It’s the same narcissistic tone that makes me shudder when I hear cries for the heads of Goldman Sachs traders because they had the balls to trade when they SHOULD be trading. There are two points I wish to make very clear here as to the reality of the current economy and what the past five months has provided.

First, the July unemployment report came out today, 9.4%. Yes, 9.4% is an awful number, but this is down from 9.5% the previous month, marking the first sequential decline since April 2008. This was HUGE! Unemployment is a lagging indicator, meaning that it will be the last indicator to correct itself as the economy comes out of the recession. All this talk about going from bad to less bad, the reality is that we have passed the worst of this, which occurred late last fall, and we have also passed the worst of this cycle in the stock markets which as I have already pointed out occurred in the beginning of March. The point of this matter is perception is reality, and right now Mr. Market is telling us that the economy is getting better. Companies have reduced their expenses so that their top line is declining faster than their bottom line. You know what this tells me? That once the consumer comes back to the market, which is the most important thing and directly related to unemployment, businesses are going to kick ass. More top line growth with a new and smaller expense scale equals margins and revenues that will quickly propel this economy back to where it was pre-hybrid real estate espionage. The only thing that is going to keep us from completely rocking is the growth of China and there increasing desire to take more and more global economic responsibility.

The second issue I would like to discuss is about how people want to piss and moan about the bonuses being paid to traders and their ilk. Perfect example: Goldman Sachs. Look, these guys just finished up their best quarter ever! That says a lot as every other company in their line of business is reporting write downs and losses or marginally better reports. Goldman has some of the smartest guys in the business, FACT, and they realized that back in the early spring was the absolute best time to get risky and place big bets on the market. The reason why? Only place to go was up! I have no sympathy for hedge funds, mutual funds etc out there who missed this move because I killed it, and if I can kill it, then these portfolio managers with years upon years of experience should have realized that with the valuations that were implied that all anyone could do was make money in the market, all you had to do was stand there. So please excuse Goldman Sachs for being a realist, excuse them for shutting their mouth (after it nibbled on the tit of the U.S. Government), putting pen to paper, fingers to keypads and money to their wallets.

The Realist
August 7, 2009

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