I couldn't help but thinking, as I watched portions of MTV's New Year's Eve coverage which featured the cast of the Jersey Shore, that it's hard to be bullish on America. Why? Simple answer: Jersey Shore Season 3 - the mere fact that it exists. That alone is bearish. (My most faithful reader, Bones, will be very unhappy to hear me slander the Shore crew like this, but hey - I call it like I see it)
Anyway, I also tend to somehow want to infer some sort of warning signal from the fact that the 7-9 Seattle Seahawks made the NFL playoffs and will host the 11-5 defending Super Bowl Champion New Orleans Saints on Wildcard Weekend. But hey, the Seahawks are just playing by the rules they were given - one could even make the case that the AFC West Champion Kansas City Chiefs' 2-4 division record is as much of an abomination, although that probably wouldn't be much of a case. 538blog quantifies just how bad the Seahawks are.
Also troubling to me is that fact that I very much agreed with Paul Krugman today - at least on one point:
"But then again, not so much. Jobs, not G.D.P. numbers, are what matter to American families. And when you start from an unemployment rate of almost 10 percent, the arithmetic of job creation — the amount of growth you need to get back to a tolerable jobs picture — is daunting.
First of all, we have to grow around 2.5 percent a year just to keep up with rising productivity and population, and hence keep unemployment from rising. That’s why the past year and a half was technically a recovery but felt like a recession: G.D.P. was growing, but not fast enough to bring unemployment down."
I've had a related discussion with some colleagues multiple times. My friend Ginger Ted asked me what my GDP prediction for 2011 was. I replied, "Who cares? It's all Government spending anyway," my point being that you can't value companies based on unpredictable government spending and transfer payments. How can everything be hunky dory when we are at (un)employment levels that we basically haven't seen for 70 years? Which leads perfectly to my next reading, the Barron's interview with GMO Strategist Ben Inker.
Q: When it comes to how investors think about asset allocation, what do you think some of the common mistakes are?A: There are a few things that people tend to get wrong. One of them is an obsession with comparing stocks to bonds. So if you are in a situation like today, where bond yields are very low, people say, "Well, that makes stocks look cheap." It doesn't make stocks cheap. It is possible for stocks and bonds to be simultaneously cheap or simultaneously expensive. So you really don't want to fall into the trap of assuming that because bonds stink, you should be in stocks.
This highlights a point that most of you have probably heard 25 times over the last 6 months, and which drives me crazy every time I hear it. Just because bonds are unattractive doesn't mean that stocks are attractive! Now, there's a caveat here, because most money managers aren't going to hold large cash positions (like GMO's 30% current cash position) - in fact, most pension funds and insurance companies probably can't legally hold even 1/3rd that much cash. (anyone know the exact details of their mandates?) Which of course, is precisely the problem: they chase returns because they have to buy something, and then when things blow up, they need to be bailed out. Rinse, repeat.
Well, for now, the (S&P) trend is higher. I wrote a post 13 months ago about momentum vs. mean reversion, and I am going to try again, even harder in 2011, to follow my own advice on that front. Don't fight the Fed, don't fight the tape, don't try to call the top. They say that stocks take the stairs up and the elevator down - watch out when that cable breaks. I do believe that the backdrop for a rough correction is still in place, since I don't think we solved the problems that caused our crisis in the first place, but I'm not short at the moment.