This last week I have been traveling so missed most of the blow by blow action.  However the comments by the analysts I read plus other articles leave plenty to comment on.

The FTSE had a bank holiday on Monday so I didn’t miss anything there.  For the rest of the week it managed to gain of 46 points. You could say the market is going sideways or consolidating.  For all the hype that things are getting better and that the recovery will be underway by the end of the year, they overlook a few unpleasant facts.

As I have said many times before, no matter how much money the government pumps into the system, in reality it all comes back to the consumer.  In the US initial unemployed still comes in over 600,000 each week. Continuing unemployment is at record levels.

If you have not signed up for John Mauldin’s free weekly email you are missing out on some of the best analysis around. (Link on the right hand side of this site)  His letter this week is very sobering.  He gives three senarios as to the future of the economy.  Like the consumer is finding out the hard way, if you continue to spend more than you earn, you have to borrow the difference.  Sooner or later you have to pay back the “borrowed ” money. For governments the problem is many times bigger.  Governments borrow by “mortgaging” future tax income. Even now there is no possible way to meet all the promises and commitments made about retirement income and health care.

In the first scenerio the answer is to inflate the currency.  Then you and pay off the debt borrowed in “old dollars” with “new dollars” that are worth a tenth of the value.  When I was a boy a liquorice strap cost 2 cents, I saw the same thing in a shop the other day for 90 cents.  John Mauldin gives the inflation senario a 35% chance.

The second senario is to raise taxes.  No politician likes this option.  In the US they are starting to talk about a VAT tax.  This will not be popular, so they will sell it by saying it will replace a whole range of other taxes and stamp duties. But in the end it will be an additional tax.  John gives this senario a 60% chance.

The third option is to just go ahead and raise taxes on the rich, reduce spending programs, and don’t start spending money on anything until you can afford it. John gives this senario just a 5% chance.

The above is very much a condensed version.  The letter goes on to give a housing update.  All is not well in this area either.

The S&P500 gained 13 points on Friday and about 10 of those points came in the last 15 minutes.  What happened in those last minutes to make such a big move?  The answer is that it was the last 15 minutes of trading for the calendar month.  It is called “window dressing” by traders, where the funds, ( and governments), want to make things look better than they are.  This week will see the bankruptcy of GM.  It will be an interesting week.