Consumers Can't Carry the Load Anymore

The tech bubble has been resolved: Technically, Steinberg is correct. But we're still living with the aftermath of the bubble, namely tremendous overcapacity across a wide number of tech-related industries, which is putting tremendous downward pressure on profit margins of surviving firms.

Structural rigidities and bad policy: Jim Cramer recently provided a rundown of how the obliviousness of the Bush administration's economic policies (or lack thereof) is threatening a number of industries, including telecom, airlines, financial services, and any company facing potential asbestos litigation. I don't always agree with Cramer, but this piece should be required reading for government bureaucrats and optimistic economists everywhere.

Inflation is nonexistent: To be sure, there is little pricing power in many industries (read: tech and telecom), but to argue inflation is "nonexistent" is disingenuous at best. Since Jan. 1, the Bridge/CRB Index is up 18.3%, crude oil is up more than $10, gold is up more than $43.50, and agricultural commodities such as wheat and cocoa are up even more dramatically. Home prices, labor costs and health insurance premiums are also on the rise. The Economic Cycle Research Institute's future inflation gauge had an annual growth rate of 18.8% in August. Meanwhile, the U.S. Dollar Index was down 7.9% year to date heading into today and, of late, was down 0.73 to 107.22 amid a big rally in the Japanese yen.

Productivity growth is stupendous: I can practically hear Bill Fleckenstein's hair standing on end, so I'll quote from his column (which is apropos on many levels): "From 1987 to the present -- i.e., the tenure of the current Fed chairman -- productivity growth has averaged 1.6%. When Mr. William McChesney Martin ran the Fed, from 1951 to 1970, productivity growth averaged 2.6%. So, you can see that contrary to what [Steinberg] says, productivity growth is not [stupendous] ... [and] it is certainly below what we were able to achieve in decades gone by."

Yes, it's easy to make a bearish case right now. But until high-profile economists stop spouting the bullish rhetoric that all our problems stem from worries about war with Iraq and/or corporate accounting scandals, I'll be hard-pressed to believe sentiment is really so negative and thus a positive contrarian indicator.