Best Of Richebacher NOV

BEST OF KURT RICHEBACHER
November 7, 2005
The U.S. economy’s mainstay of growth, consumer spending, is down sharply since June, to wit, well before the hurricanes hit. The U.S. asset and credit bubbles have gone to such exorbitant excess that an abrupt reversal appears possible, if not probable. The reality of the situation is that the U.S. economy and its financial system have become addicted to continuously greater credit excess. As we shall explain, there is far more economic and financial weakness in the economy than most people realize…..
U.S. economic growth depends precariously on the full-blown continuance of the housing and refinancing bubbles as the shortfall of consumer incomes continues unabated. In addition, accelerating inflation rates are taking their toll. Consensus economists remain steeped in denial.
For sustained economic growth, it is imperative that corporations take the baton from the struggling consumer with a strong pickup in fixed investment. There is no reasonable indication this will happen. Instead, they are pouring record amounts into stock buybacks, mergers and acquisitions.
The bulls will jump at the idea that new rate cuts by the Fed will quickly reverse the situation in the markets and the economy. But there is little room for new monetary and fiscal stimulus, while the economy is in far worse shape than in 2000. After all, the Fed is sure to "push on a string."
But do not think that bonds will be a safe haven under these circumstances. Being built completely on highly leveraged carry trade, they are extremely vulnerable to any kind of disturbance.