Speak Softly--But Carry An Ice Pick.

July 20, 2011

There's a killer on the road
His brain is squirmin' like a toad

Take a long holiday

Let your children play

If ya give this man a ride

Sweet memory will die

Killer on the road, yea

-from Riders On The Storm, The Doors

As Q2 earnings season began last week, 31 major companies reported. 74% of them beat expectations. Tech behemoth Google blew the doors off, sending the stock up nearly 13%. Great start. And that's not all.
BHP Billiton offered to acquire Petrohawk. Carl Icahn offered to buy Clorox. Acquisitions are the product of cash flush companies realizing that their peers are priced at such attractive valuations that there is simply no better utilization of capital than to acquire them.
These bullish activities will likely gain speed in the coming months. And there's more.
Q2 Business expenditures, investment in equipment and software, looks like it grew at a 7% annualized pace. Productivity remains strong. Monetary policy is loose. Jobless claims are falling. And because businesses can fully expense investments this year for tax purposes, record levels of profits and cash will likely catalyze further capital expenditures.
Like an insomniac, the markets have been up for two straight years. Earnings have been fantastic. Many of the indicators we follow continue to track positive.
Sound good? Not so fast.
In the midst of this would-be picture of tranquility, consumers more resemble Jamie Lee Curtis in the movie Halloween. Scared out of their minds.
This horror movie features a comely consumer class that simply wishes to work, save, spend and enjoy their summers. But, there's a twist.
A killer. With an ice pick. He escaped from the Nation's Capital Asylum in D.C., where he's been holed up for years. He's obviously been in solitary. Nobody with whom to speak. Cause this guy won't shut up. And the things he says? Frightening!
Government shutdowns. Financial catastrophes. Tax hikes. Sovereign debt downgrades. Unsustainable debt levels.
"Lady, hang up the phone and get out of your house. The Senator's call came from the upstairs bedroom. He's in your house!"
When did leadership cease being a requisite for politics? Humility. A soft spoken, quiet confidence that belied ability. Presence. Strength.
The founders felt that government's role was to defend and protect. To preserve the rule of law. Not to scare the hell out of us in an effort to score political points.
Unfortunately, we have nothing to fear but fear itself. And our politicians.
The fear seems to be rising. Self perpetuating. An eventual disaster of D.C.'s own making.
Take the debt ceiling. The nation will not implode on August 3rd if we don't raise the debt ceiling. The U.S. will not default on its debt. This claim is bogus.
We have more than enough income to pay the interest. We can roll over the bonds to repay principle. If the ceiling is not raised, there will be no calamity.
But each day one of our escaped lunatics from D.C. is ranting about the impending crisis that the other party is so intent upon. Reckless demagoguery. Pure and simple.
What about the recovery? "Because of the economic policy of our rivals, this recovery has not gained traction. We risk a double-dip recession..."
Of course the economic recovery is a slow and plodding affair. All credit recession recoveries are painfully slow.
The typical post WW2 recession recovery cycle is the wrong benchmark. Post credit-crisis recoveries should be the working metric. And these are described as mediocre, low growth, anemic job producing affairs.
Alas, the truth will set you free. But it won't scare the daylights out of you. So, instead of providing a clear vista of reality, let's set the stage for yet another act of political drama.
The political caterwauling has achieved new decibel levels. And with everyone so concerned about a market drop on August 3rd-and the media perpetuating the vicious cycle, it's almost bound to happen. And if it does-take whatever capital you have available and buy Apple. Google. Goldman. Caterpillar. Exxon. The real stars of the American stage. For surely these companies will survive the climactic scenes. And become protagonists in the sequel. Coming soon to a 24-hour news channel near you. Stay tuned...

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