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Are Stocks cheap? August 3, 2013

Posted by hslu in Congress, Economics, jobs, Obama, Obamacare.
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You decide. Here is just one of its metrics.

P/E ratio of S&P 500; 1960 to August 2013

P/E ratio of S&P 500; 1960 to August 2013

Keep in mind that stocks do not have to be justified by what’s going on in the economy right now.

We also have QE3 by the Fed which has been manipulating the economy, the equity market and the Bond market. It also artificially lowered the savings rate at banks. of course, you already knew this when you opened your bank statements years ago. Bernanke justified his action by saying that inflation is low and people are more than compensated by the growth in the stock market and the equities of their houses. Besides Bernanke can hide behind his dual mandates from the Congress. But we have no where to hide but to chase yields at our own risk though.

The Fed has forced everyone to riskier assets. By doing so Bernanke has popped up the bubbles in equity market and the real estate market. By keeping the rate low, the biggest bubble is in the long bonds and not m=very many people knew it.

What if these bubbles are eventually popped by Fed’s own action? Will we get a bailout like the too-big-to-fail and too-big-to-jail banks? 

It appears that Fed’s money printing action will continue but September is a critical time. The stock market is probably betting on tapering starting in September.

Why? Isn’t the economy lousy?

Yes, the economy is very lousy. But:

About 69% of Fed’s money is not in the economy. Velocity of money is declining and the Fed knew it. The question you want to ask yourselves is this:

“Where is the growth in GDP?” and

“Where are the jobs?”

The trend doesn't lie

The trend doesn’t lie

All the Fed has managed to accomplish is a GDP growth rate of 1.7% in Q2 which is saying that the GDP has grown by the amount that roughly matches inflation. In other word, the economy didn’t grow at all in real terms. Despite all the QEs the Fed has done in the past.

And 162K new jobs created in July were not even enough to accommodate new entrants in the job market. The White House and liberal media hailed the new jobless number but they have stopped mentioning the fact that US economy has about 250K people entering the job market every month. In other words, the United States is falling behind very seriously.

Pretty amazing, isn’t it.

It is also very sad too.

In case you don’t know or you have been fooled by the 7.4% jobless rate headline number:

There are currently 90 million people who are not working in the richest nation in the world: The all mighty United States.

About 47 million of that 90 million people are on food stamps. No question that more than 47 million of that 90 million people are on other forms of government hand outs too.

That is about all Bernanke has been able to do.

Yeah, 7.4% unemployment rate! Great achievement by the Fed, Obama, and the Congress.

I have no doubt that Obamacare has something to do with the fact that part time worker has grown in the past several quarters.

More part time jobs created due to Obamacare

More part time jobs created due to Obamacare

Every where you see, you see the foot print by Obama’s failed policy which hinder job growth and business investments. The so-called middle class in the United States is disappearing and the United States has become a nation of hamburger flippers, hotel maids and night time stock persons at local Wal-Mart and maybe K-Mart as well.

This is the hallmark of the Democrat Party and the hall market of one of the most liberal president of the United  States: Obama.

Well, in conclusion, the Fed is very nervous of the unintended consequences of all the QEs they did in the past but they also knew  that they have no control of the Bond market.

To put it in simple terms:

The Fed has put itself between a rock and a hard place. Bernanke will probably do everything he can to taper. The economy may not let him to though.

We’ll have to watch the drama but we are actually one of the players in the drama as well whether we like it or not. Bernanke will retire and the “烂摊子” will be someone else’s problem by February, 2014.

He has had enough. I can tell.

But not to be too harsh on Bernanke on the eve of his retirement, he has to learn a lesson from Mario Draghi because Draghi has single-handedly calmed the European sovereign market without printing a single Euro.

History will be the judge on Bernanke. Not me. But his action will no doubt affecting my and your lives. We have no choices.

Well, I had enough QEs too.

But heck, no one listens to me. Not even my wife. LOL.

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