I just read this from The Daily Reckoning: http://thedailyreckoning.com
"The rising market is driving the majority of the economic data supporting the "green shoots" crowd. The Index of Leading Economic Indicators, which has been pointing up for a few months, is heavily influenced by the stock market. Now, stock market bulls are pointing to the Leading Economic Indicators as a reason to buy stocks. It's circular reasoning, plain and simple, and it is now in vogue to the extent that now is a very dangerous time to be holding stocks.
Here are six lawn mowers from the real economy - the parts that don't revolve around Wall Street of Washington, DC - that could easily mow down the green shoots:
1. Stabilizing numbers for continuing unemployment claims are painting a misleading picture. In reality, hundreds of thousands are rolling off of the traditional six months of benefits into extended unemployment benefits rolls. The recent payroll data was temporarily inflated by a rebound in auto production from depression levels, and the government's hiring of census workers. Also, the unemployment rate fell because the number of people actively looking for work keeps falling. There are absolutely no signs that those who were laid off will find a new job anytime soon.
2. The federal government's income tax receipts are still collapsing. Paycheck withholding tax receipts are still falling sharply. As data services like TrimTabs have demonstrated, income tax receipts are far more accurate gauges of trends in personal income than the highly massaged employment figures from the government. Falling tax receipts translate into a higher threat of confiscatory marginal tax rates in the future, deficit monetization and more inflation.
3. Last Friday's aggregation of July same store sales in the retail business confirms that end demand for many products remains bleak (aside from auto sales in the "cash for clunker" program, compliments of the ballooning national debt). For perspective, gasoline prices in July 2009 were about 35% lower than the $4-plus per gallon level of July 2008. One would think that this would be a major tailwind for retail, but it's not.
4. The federal government is spending other people's money like a drunken sailor, yet a good portion of the sugar high "stimulative" effect of this spending on GDP will be offset by lasting cuts in state and local government budgets.
5. The bond market will continue balking at absorbing trillions in new Treasury bond supply to fund the deficit. Rising mortgage rates, which are tied to Treasury Note yields, will limit the positive impact of refinancing those few homeowners that have any equity left in their homes.
6. Has the market noticed that the FDIC is stalling on its duty to shut down and eat heavy losses at several zombie regional banks - Corus, Guaranty, and Colonial to name a few? When it when it does so, it will have to draw down tens of billions of dollars from its emergency line of credit with the Treasury.
These factors all indicate that the economy is most certainly not returning to pre-credit bubble conditions. Yet the stock market is pricing in a return to such conditions - especially in the rallies in junk stocks that we've seen since the market lifted off on July 13.
I'll add a seventh lawn mower: the growing risks posed by debt bubbles in China and other emerging markets... "
That could be the source for the "bank holiday", number 6. If the FDIC is running out of money, the bank run will begin in earnest.
