- The Option-ARMs will start to recast this year and peak in 2011. Same thing with the Alt-A paper. Together, they are quite a bit larger than the
- The P/E (price to earnings ratio) of the DJIA (above) is presently 52.48. Historically, the Dow 30 iP/E is in the low teens. Anything over this is considered inflated, and a correction is imminent unless economic growth continues at rates above anticipation. And the earnings portion is based upon future earnings. Once upon a time, it was based on historical earnings. This add to chance that a few earnings reports could send this market into a tailspin.
- Consumers are saving versus spending. For a decade or so, the US had a negaitve savings rate. (I read where the 25-34 year-old segment actually had a -16% savings rate.) It has fianlly become positive in the 5% of earnings. So let's see, 70% of the economy is driven by consumer spending a change in savings from -.5% to 5% equals a 5.5% redirection of earnings from discretionary income to savings. Right there equals a 4 1/8% contraction in the GDP. (Results may vary.)
- Credit is still non-existant. Bank were leveraged to the hilt during the good times when was easy. Historically, the banks were leveraged 7-10 times their reserves (for every dollar they had in reserves, they lent out seven). During the credit orgy, this increased to thirty or forty times reserves. So all the hundreds of billions in wealth that you and I handed the banks is going into reserves to bring their reserves back to earth.
- Energy is inching up, along with other commodities. Light Sweet Crude has been hovering around seventy dollars per barrel. Today it closed at $72.65/bbl. The rest of the world will stumble along the pathto recovery while the U.S. economy languishes. So prices should settle back to what I consider a reasonable valuation of $100/bbl.
More tomorrow on my newly acquired 1985 Ford Lariet XLT crew-cab diesel pick-up. An era of being carless is probably over for now. And that's sad in many ways. But my friend Hutch once told me, "sooner or later in life you're going to need a pick-up. Or a friend with one."