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Bull Market IOUs

Note: In celebration of my latest book coming this August, I have re-christened this newsletter "Always a Winner Strategies." The book is the culmination of almost a decade of research examining how the business cycle strongly affects both the bottom line of companies in the performance of portfolios.

Financial markets around the globe continue in a bullish uptrend. The important paradox to note in this cyclical bull market is the continued weakness in the private sector elements of the GDP equation -- consumption, investment, and exports. Truly, it is primarily the fourth component of the GDP equation -- government spending -- that is propelling world markets.
My ongoing concern, which is writ large in the cover story in the Economist this week, is the huge build up in debt in the world's major economies. From the United States to China, governments around the world are using traditional Keynesian fiscal stimulus and historically large budget deficits to dig their economies out of the credit crisis depths of despair. On top of the burgeoning debt, countries and continents ranging from the United States and China to Japan and much of Europe face a graying population that will impose a significant fiscal burden on the younger generations. There will be those young people who will be tasked with the job of supporting a whole new cadre of Gray Panthers -- and the politics won't be pretty.
The macro trends point clearly to a continuation of the cyclical bull -- albeit with a likely secular decline following at some point on the horizon. The question this column will be focused on over the coming months is simply how long the current bull lasts. Already, the seeds of its own destruction may be seen in a rapidly steepening yield curve and rapidly rising energy prices.
Of course, I don't really mean to bum you out here. After all, it's been a lot of fun the last few months, and it is really easy getting used to racking up double-digit gains on the portfolio on a monthly basis. That, like the current fiscal stimulus bubble, is simply unsustainable -- unless of course you always stay ahead of the macro trends. So continue to make your money on the long side for a while. Just be ready for the other shoe to drop.
The Coming China Wars
You may find my latest article, written with Greg Autry, to be quite interesting. It appeared last Thursday in the San Francisco Chronicle; and it analyzed the various implications of the latest edict from Beijing regarding Internet censorship. Click here to go directly to the article. It is truly hair-raising.