Every day [media organizations] want to scare me. Greece is going to suddenly disappear. Or have some sort of debt contagion that will spread across the Atlantic. Everyone is a contagion expert. Just like we were all experts on Avian Flu. Whatever happened to that one? Did anyone die of Avian flu?
Heres what happens in a newsroom. I know this because Ive been in many newsrooms: Top editor/producer says: Ok. What do we have to work with? Reporter says: Well, the economy is up. Editor says: Not good enough. Reporter says: Well, radiation from a tiny island in Japan might hit San Francisco tomorrow. Editor/Producer: BINGO! And then its all over the news. And then everyone in San Francisco gets sick from iodine pills. And then no radiation hits. And the media moves on: ECONOMY HEADING FOR PROBABLE RECESSION!
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But, unfortunately now, the economy is on fire and is going to stay that way for awhile.
Heres why, in quick bullet points:
- 23 consecutive months of private sector job growth. In other words, after every single recession, all the newspapers spoke about a jobless recovery. Well, we had one again. And guess what. 23 consecutive months of private sector job growth is whats called good news.
- Real GDP has grown for 10 consecutive quarters. People will say, oh thats fueled by QE2. No it isnt. QE2 might be bad or good. We dont know yet. The last dollar in QE2 was spent in June, 2011. It takes 6-18 months, if not longer, for the effects of QE2 to be felt. So we just dont know yet. What we do know is: 10 consecutive quarters of GDP growth is whats called a good thing.
- Car sales are up 53% from the bottom in 2009.
- Earnings yield on stocks are at 7.4%, treasury yields are at 2%. Remember back in Ancient Times? Like the 1980s and 1990s? This ratio was reversed. Does that mean the S&P 500 is going to triple? Maybe. Maybe not. But it means stocks are a much more lucrative bet now than treasury yields.
- Money supply is growing this means that banks are finally starting to lend. Money supply is measured by M2. This has just been starting (see the six months I mention above.)
- Corporate cash at a high. Not only that but
- First recession in 200 years where cash increased quarter over quarter every single quarter. So wait a second, didnt we have a recession. Yeah, but companies made more money than ever by firing all of their dead weight. Is this good or bad? I dont know. But now employment coming back and cash is in the bank.
- Trailing P/E on S&P is 12. P/E is price over earnings and is used to gauge whether the market is cheap or not. The average is 15, about 20% higher. If you look at forward earnings, the forward P/E is about 10 (because of earnings growth and all of the announced buybacks). That means the market could easily be worth more than 50% higher than where it is now. Well, the media can say, what if profits go down? Yeah, what if? Shut up.
Well, what about Greece? Yeah, I say, what about Greece. I was on TV a month ago and this came up. I said, Greece to the Eurozone is like Rhode Island to the United States in terms of GDP. And I live 40 minutes from Rhode Island and have never set foot in it. So why should I care about some beach resort 5,000 miles away.
So the response from the erudite reporter was, but investor psychology cares about Greece.
Yeah, I said, because of you every day blabbering about it on TV. Lets talk about Kim Kardashian instead. A much more interesting topic.
So what does this all mean? Does this mean your life is going to be better because the economy is going to be better? Who knows. Thats up to you to choose. Does this mean the media will start apologizing for all the misinformation? No, of course not. They will just figure out the next thing that scares you.
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