I keep hearing on the argument of how inflation will come and haunt us. And how interest rates are going sky-high. And how we are doing things wrong and the economy is so bad. And if mortgage rates go above 5% then everything will break apart and people will stop getting mortgages. At leas that is what the pundits say.

My first question is why is there is such a drive toward negativity? American’s tend to be optimistic, and when you look at the consumer confidence numbers you see that average American’s are. Yet when you listen to the financial experts you hear on how bad things are.

So what gives? Are things that bad? What if there are other reasons? What if the reason why we have these negative comments is because the financial experts need it? Let’s say that you are running a fund, and you were down last year, you had an excuse. But what if you are down this year, what do you say? What can you say? After all you are the financial expert and hence you should be able to make money!

But what if you as the financial expert were the deer in the headlight last year and now don’t have the heart to cross the road? What if you have to tell your fund holders that you are lagging the benchmark? Well then you have a major problem. And that I am tempted to believe is the reason why some many are negative. They themselves are facing the pressures of not performing.

So what do I have to support this argument? Why not look at the historical 30 year mortgage rates. Summarizing the average mortgage rate is around 9%! This means that the average American held mortgages at much higher levels. The 5% level is a record low level and using that as an upper bar is a red herring argument.

I even think that Americans will buy houses at higher levels of interest, so long as the price is right. And that’s why prices just keep going down, down and down. People are buying at the right price, at what they can afford. The calculation will be mixture between interest rate and price of house. Just like it used to be in the 70’s, 80’s. In fact I am thinking that this is bullish since a higher yield in the long term will make the American debt more interesting.

Of course the American economy cannot sustain 18% interest rates, but it could sustain 7%, maybe 8% and that would make foreigners stand up and look at America.

So the question is why is there no pullback? Jim Cramer had an interesting insight in that there were pullbacks, but people were so busy focusing on the indicies that they did not realize the individual sectors pulled back. This is called correlation, where overall your position treads water even though overall you built up a position.

Will there be a pullback? Maybe, maybe not! I really don’t care since I am up on the year and have recovered all of my losses last year plus then some. And since I play long only I think that is pretty good.

Just as a final thought…

Bank of America has had pressure from the government to have certain board members resign. The pundits reaction is, “OMG the government is dictating terms”. Yet as Karen Finnerman said, “you know as much as the government pressured this, this board really did not do its job, the bigger question is who replaces them.”

Exactly Karen! Sticks to the facts and not automatically look at the bad side. After all if this were any other corporation where there was no government intervention the shareprice would be skyrocketing. In fact if the government did use its clout to force change at the bank I say, “go for it!”

As a good friend of mine (not gay) once said regarding gay marriages, “if people think gay people are going to give marriages a bad reputation I say let gay people marry after all hetero’s did not do an impressive job. Gays can only make it better.”