PIM of SPAIN | October 26, 2009 at 04:20 amby
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Policymakers hope that this kind of rallies could be beneficial even when not based on fundamentals. They think if markets rebound sharply, it will boost buyers’ spirits that eventually will stimulate the consumption economy.
On this interpretation, the current rally could turn out to be akin to the firelighter that is used to start a blaze in a pile of wood.
Markets don't move in straight lines, nor up or down. Mr. Market must lure in as many victims as he can with promises of better sunsets and fatter profits. Then people are ready and willing to believe anything that confirms the illusion of improvement. Perhaps they are prepared to buy a house they couldn't afford, ready to believe stocks always would go up again, willing to believe they could get something for nothing. And if they believe in all that, they surely believe in a jobless recovery with contracting earnings and ballooning deficits. It just is a false impression that the economy will improve, while many jobs are lost forever. Apparently authorities have forgotten that everyone has the right to have a job!
"Nearly every economic and corporate development over the past few months has been translated into a reason to buy stocks. But underneath the elation over Dow 10,000 lies the palpable feeling that this rally is to be 'rented,' not 'owned.”
“Stocks are rapidly approaching - and in some cases have eclipsed - valuations that presuppose a robust, multi-year recovery is well underway. The S&P 500 index sells for over 19x FALLING earnings, earnings that are unlikely to improve in any meaningful, sustainable way.”
Companies, meanwhile, are slashing employees like a bad horror movie. “Initial jobless applications rose by 11,000 to 531,000 in the week ended October 17, according to the Labor Department.” Moreover people working fewer hours and earning less money might tighten their belts. Government better should worry about what might happen to the consumer economy when consumers economize.
After this economic hurricane is over, there will arise new industries developed in the US. “The rest of the world spends a fraction of what the Americans do on research and development. Where do you go if you are looking for venture capital?”
In other words: Don’t worry too much about the Chinese and the "developing" world will be far better off, relatively speaking, than the US in 20 years. In the U.S. they may make discoveries and inventions and grow new businesses that will benefit all. In fact the US in 1980 hit the wall and Paul Volker forced with much pain for everyone the recession on its return by pushing down the 17% inflation. Probably it will happen this time again. With far more opportunities than there are today. If people will understand and accept there won’t be any gain without pain. Experts of the caliber of Paul Volcker will come and put in charge to ensue the new route to recovery gets off and creates new jobs for everyone.
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Omaha, Nebraska, United States
Omaha, Nebraska, United States
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