The coming depression: part IV
"The economy is stalling even as the Federal Reserve and the government do everything they can to stimulate growth. In economic cycles since World War II, government spending and low interest rates pulled the United States out of recession. This time, even though the Fed has lowered short-term interest rates 12 times in three years, and the government has swung from a $237 billion surplus in 2000 to a projected deficit of more than $300 billion this year, the medicine appears not to be working." NYTimes.com

Lock step equities: leading where?
Stocks are trading up and down in relative unison, an effect last seen during during major free-falls like the '87 crash, the '97 Asian crisis and the '98 Russian debt debacle.

The market rallied sharply after each of these tumbles and periods of lock-step trading. Does this mean we're going to rally big once the Iraq war is resolved? Or is the correlation with inflection points rather than bottoms, which might instead mean we are next headed down?

We are, in the big scheme of things, still perched atop a 19 year rally, and may not have factored in swelling deficits, exhausted consumer borrowing power, a coming housing slump, and/or looming baby boomer retirements.

Most importantly, we may have yet realized that the 19 year equity rally may have been powered by nothing more than falling interest rates. The future value of money was rising for the last 19 years. Is it any wonder that stocks, which we buy because they will generate future profits, were rising in value too? As the Fed's ability to lower rates comes to an end, that trend is, by physical necessity, over.

I guess another possibility is that we are inflecting out of a rise into a plateau, the kind of bump and grind that we saw from 1965 to 1984.

See the Dow chart or click more for correlation chart. More...

Loan sharks circle homes
Home equity loans are the crack cocaine of the American economy -- fun while they last but then a real disaster. Banks like Wells Fargo are pushing Americans to "unleash the spending power locked up in your home!" and arguing that the practice isn't risky because banks generally lend no more than 75% of the home's value. Well, sure, the practice is not as risky for the bank that has the home as security, but for a family that has to sell or give up its home if the economy softens, the practice is potentially ruinous.

How many remember that half of America's mortgages were in default in the depths of the Great Depression.

Proof we should worry: 10% of spam is pushing home refinancings. Yes, folks, step right up... pulling cash out of your home to buy a new car is about as wise as paying to "increase your bust size 20%!!!" and "FREE LUNCHES FOR ALL!"