I would have included what follows in my initial Clarification, but it actually wasn't published until after I'd written that piece, and I couldn't access it.
Legendary Dean of Market Deans Bob Farrell summed up perfectly today what concerns me -- and should concern us all:
If bubbles are created by the indiscriminate use of credit, the next big excess must surely be developing in Washington. We used to think spending forecasts in the billions of dollars was a lot of money (and debt). Today, billions are like pennies and the politicians talk in trillions as if they could grasp the meaning of such astronomical numbers. Unlimited spending and debt, almost certain increases in taxes, and bigger and bigger government are bubble-like ingredients that can only be damaging over the long run. We appear to have reached a tipping point where “growth” by government fiat is considered preferable to growth through private investment. As we move in this direction and toward wealth redistribution there is hardly a “business as usual” to return to after our systemic credit scare recession. The last bubble was created by excess use of leverage to bid up assets in the private sector. What we are facing is undisciplined debt creation (spending) in the public sector. We know from experience the pain caused by the private sector debt bubble. We can only guess what runaway public sector debt will do to our ability to grow in the future. We suspect our markets do not know either and that the “Washington Bubble” is not yet priced into our markets. We are not smart enough to know the answers either but until there is more clarity to the consequences of our public profligacy and government intervention we think markets will continue the wide swinging volatility of the past decades. This is another reason we default toward the market models of the US in the late 1930s and Japan in the 1990s as we have for some time. There may be more upside in the next few months but with the uncertainties about 2010 already increasing, the 60% gain so far since March may well be the major part of the upside.
As I mentioned previously, I get all the Keynesian stuff, but where, exactly, is this bridge taking us, and what's going to take us from there? I continue to come back to the consumer -- 70% of GDP -- and continue not to like what I see.