Apr

15

Cramer declares Depression over

Filed Under Economics 

You would think after getting humbled by Jon Stewart on the Daily Show, Cramer would scale back predictions and prognostications…

Cramer has declared that The Depression Is Over.  While I admire his optimism, I find many important questions unanswered:

  • Is an inevitable bankruptcy of GM, Ford or Chrysler fixed?
  • Has the US stopped throwing money at wars?
  • Have Social Security, Medicare, Medicaid and municipal pension plans all been adequately funded?
  • Do you think any of these issues will slap consumer spending in the face?
  • Isn’t there a chance that people will liquidate their portfolios as savings draw down?
  • Isn’t it very possible things will get worse if our expectations about perpetually rising asset values are erroneous?

Tocqueville Asset Management did a great piece on this a while back.  Head fakes of 45, 54, and 67 percent happened in Japan, and they could likely happen here.  Likewise, we could have three bear market rallies and still end up lower 10 years from now.

The stock market is not the economy and the economy is not the stock market.  A stock market rally does not portend an improvement in the economy if the underlying fundamentals (entitlements, unfavorable business climate, corporate welfare, all-time low interest rates, proliferation of the FIRE economy) are not solved.

Takeaway:  It is important to have the most accurate model of reality as possible.  No matter which way the stock market goes, if the fundamentals haven’t changed, our economic behaviors (saving habits, spending habits) should not change either.

For my take on Cramer’s Daily Show appearance, click here.

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