Wednesday, October 6, 2010

USA current market looks like a ponzi scheme---By Shan Saeed

US economic recovery is questionable and growth is fragile------By Shan Saeed

The current market is a Ponzi scheme. To some extent, I view current market conditions as something of a 'Ponzi game' in that valuations appear neither sustainable nor likely to produce acceptably high long-term returns, and speculators increasingly rely on finding a greater fool.

“Undoubtedly, we have periodically missed returns due to our aversion to risks that rely on the ability to find a ‘greater fool’ in order to get out safely. It is important to recognize that speculative risks aren't a source of durable long-term returns.

"As the mathematician John Allen Paulos has observed, "people generally worry only about what happens one or two steps ahead and anticipate being able to get out before a collapse... In countless situations people prepare exclusively for near-term outcomes and don't look very far ahead. They myopically discount the future at an absurdly steep rate."

If you strategically analyze the situation in USA right now, the U.S. financial system appears to be a nicely painted dam, behind which a massive pool of delinquent debt is obscured.” Credit card crisis is the next big financial drag on the economy....

“A significant correction in valuations and resolution of the growing backlog of delinquent debt may finally restore strong ‘investment merit’ to the U.S. stock market, but only after a greater amount of pain and adjustment than most investors seem to anticipate.”

Large corporations continue to borrow huge sums of money, but most appear to be sitting on their cash instead of spending it, which may benefit shareholders in the long run.

“They are still holding on to more cash in the same way that Noah built the ark,” “It is very telling.” Household debt to GDP Ratio is 122%...It requires $5-6 trillion to bring it back to 100% of GDP......Deleveraging is continuing in the US economy right now which will further drag the economy making it into subpar growth for the next 2-3 years...

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