The Big Picture for the Week of July 10, 2011

The jobs report printed yesterday and as we all know it stunk. It was bad in every direction.

As a repeat theme the "worst financial crisis in 80 years" should take a long time to work through. Housing still stinks and jobs still stink. From a housing standpoint there was wild excess in terms of supply, extreme risk taking on the part of lenders and extreme risk taking on the part of home buyers both buying more house to live in than could actually be afforded and buying more homes (for speculation) than could actually be carried. While the plummeting of prices is probably over the gradual declines probably are not and there are very few signs of natural demand resuming anytime soon.

On the jobs front the US lost about 8 million jobs and only about 1/4 of the jobs lost have been replaced, so the stats tell us, but even the small retracement is dubious when population growth and underemployment are factored in. The are pockets in the economy of varying size facing structural unemployment; what portion of construction workers will never work in that field again?

Politicians do not know what to do, hopefully that is obvious, but that won't prevent them from continuing to appear to try with various "fixes" that they don't truly understand. I found it amusing that Obama singled out corporate jet owners (this has been widely talked about) and CNBC had a corporate jet executive on yesterday pointing that his industry employs 1.3 million people and increasing taxes will have an impact on that number working in this industry. Obviously the executive has his own agenda too but I think the example does isolate the on the one hand nature of these issues.

All of this negativity and we haven't even gotten to the political wrangling over the debt ceiling and the debt in general. Cullen Roche is big on jumping on anyone who says we are headed for an outcome like Greece branding them as not knowing how the US monetary system works but I am not sure that is correct. To be clear, the idea that because we control the printing press, as opposed to Greece who does not, we will not face the same outcome as Greece is completely correct. The threat is a different bad outcome than Greece's but I'm not sure that the politicians in question don't understand this so much as their constituency doesn't understand and there is some perceived political benefit to them to continue to scare their constituents.

If this seems plausible then it means that the debate is dishonest which further reduces the already microscopic odds that policy can ever help actually start to become effective.

All of this negativity and we haven't even gotten to... a lot of the other issues that make this so complex.

The above is the fundamental case for why the US is not currently an attractive investment destination. This is contradicted by the the fact that the US market has generally done quite well for more than two years now. We are not zero to the US and I'm sure we'll always have some exposure but as a repeat theme it seems only logical to seek out countries that do not have these same obstacles before them.

Simple avoidance (or maybe just underweighting) is an easy way to minimize the personal impact of large declines in the market.