The Truth Hurts

Over the weekend, I listened to commentary by the members of the G20. I also listened to President-elect Obama, and many of the economists who claim to have the solutions to all of our economic problems. The sad part about this whole thing is that none of them, and I mean none of them, saw this thing coming, and yet, now they all claim they know how to get us out of it. Well, quite frankly, they’re missing the forest for the trees. When you create an environment where four cars, three homes, multiple electronic devices, extravagant vacations, and dining out almost every night of the week is the norm, you have to ask yourself the question: What has made all this possible? Answer: low interest rates, and ease of credit has made the lifestyle of excess standard fare.

What everyone is missing is that in order to support these extravagant lifestyles, businesses have been created, and the world has gotten into the mix. For example, China builds ten factories, and puts thousands of employees to work, strictly to make products that are imported to stores in the United States, and eventually, to you, the consumer. Those businesses created jobs. Those jobs created income, the income created credit, the credit created the new lifestyle, and cycle goes on, and on, and on. The problem occurs when the consumer stops buying. Therefore, those businesses are no longer needed.

They all have it wrong: The G20, Obama, Bush, Paulson, Bernanke, and the pundits on television. They all figure they want to get it going again. However, they can’t. Why? It’s over, and times have changed. The solution? Very simple: Don’t live beyond your means. That’s the reality of the economy that we are living in today. Wake up and face it!

Till next time,

Bill

P.S. - Will the stock market trade straight down? Of course not. There will be fits and starts along the way, which will create trading opportunities. Last Thursday was a classic example. The market had a lower low than the day before, but closed higher than the day before on very heavy volume. That’s called a classic reversal pattern, and that’s why we currently own long positions.