All Posts Tagged With: "government debt"
Stop… Think About It
Michael Bowler | RSS | Mon, Jun 15 2009 | 2 Comments
As stated in an earlier article, sometimes the best movement is standing still. As true as that is, after the three month economic rally we’ve seen, it’s time to stop and refocus. In a conversation in the comments of a previous post concerning the new Northrop Grumman contract, this author made the following comment, to the agreement of both parties involved in the conversation, “However, you mentioned we had the biggest rally in history. That is true, and it concerns me slightly. Our recession hit a false bottom. I’m afraid that people will get too excited and we will hit a false rally. I’d like to see a slow, steady rally as we rebuild a firm foundation under it, instead of just setting up another rollercoaster ride.” That is exactly what you are currently seeing.
We are stepping sideways at the moment, and then taking a step or two back to take a look at what we are currently doing. That is healthy and, albeit strange to admit, encouraging. Investors have been gutsy but smart and it paid off for three months in a nice rally. Investors are now backing off with the news that the signs of economic growth have slowed down and will need more solid evidence of recovery before going further. With the fear of rising interest rates, inflation, the falling value of the US dollar and rising commodity prices, it is understandable and healthy.
The falling dollar and inflation are silently strong concerns. Worries over government debt (partially created by the entire TARP fiasco) that has started to lead to a little extra printing is beginning to drop the value of the dollar. Combine that with worries of inflation or a raise in interest rates due to impending efforts by the Federal Reserve to trump inflation and you have a very insecure economic system on which to run a stabilizing market. Be encouraged, however, because investors are doing the right thing and the economic slowdown after a hefty rally is a great, healthy thing. This allows the market to even out and build under the new rally before starting another one and gives the government time to begin giving the dollar economic CPR and allows the Fed to control interest rates and inflation. Everyone wins.
“A sideways move in the market is actually a corrective move. You get rid of the overbought condition when you move sideways,” said Keith Springer, president of Sacramento-based Capital Financial Advisory Services. Analysts and experts warn that the rally was a bit too much for the economy to handle and that a slight pullback is in order to recap and solidify before moving any further. The S&P 500 index rose 40% since March, something that normally takes years to do. That is huge and requires a healthy break to assess the situation and look for positive news before pressing on. The major indexes moved less than 1% last week, creating a nice firm halt. “I’m inclined to take the market action the last two weeks as reasonably positive,” said Uri Landesman, from ING Investment Management global growth strategies.
Related posts:Housing prices are on the decline nationwide
Who has their hand in Robert Fisk’s pocket?
Tags: inflation, government debt, false bottom
Investors Await Confidence Boost
Michael Bowler | RSS | Mon, May 25 2009 | 1 Comment
The United States is entering a much needed economic recovery. The worst of the recession is over. (Keep an eye out for articles this week detailing why that assertion is correct.) Unfortunately, the economic mood deteriorated last week as investors began to question whether the recent rally was premature. They were also warned about British government debt that raised concerns about how much money the U.S. government owes, mixed with the longstanding concern that we are borrowing entirely too much money from China and other countries.
As stocks rallied, starting in early March, investors were able to find signs of hope in reports that showed a still struggling economy. As the rally is slowing down, investors are rather uneasy going into this trading week, which will see through to two reports on April home sales and the latest assessment of consumer confidence. Combine that with a potential June 1 Chapter 11 bankruptcy filing by General Motors, and you have investors all over the country ‘sitting on pins and needles’.
What is scaring investors right now is the amount of jobless figures that are still going up. What investors fail to realize is that there are two kinds of economic indicators: leading and lagging. Leading indicators are economic actions that foretell an upward moving economy. Lagging indicators are economic actions that react slowly to economic changes, therefore leaving no predictive value. Jobless figures are a lagging indicator due to the fact that jobs are not created by most companies until capital is obtained or accounted for that support them.
Jobless figures are not going to go up until all the leading indicators, which are very strong right now, manifest themselves in the way of solid economic recovery. Economic recovery can and will not happen quickly because a strong recovery happens slowly as a solid foundation is formed under each step. The economy will waver a little with each rally followed by a short decline as that slow recovery has solidarity formed under it. You are also guaranteed to see a few more struggling businesses, especially in the financial market, hit Chapter 7 bankruptcy, liquidate, and be swallowed up by stronger businesses. When that occurs, there is nowhere to go but up because there are fewer weak businesses to slow down and weaken the recovery.
Major leading indicators squeezed out a gain last week. The Dow Jones industrial average rose 0.1 percent, while the Standard & Poor’s 500 index ended the week up 0.47 percent. The first test of ability to build on these gains comes Tuesday, when the Conference Board releases its May consumer confidence index which should provide some insight into consumers’ willingness to spend. Ron Weiner, president and chief executive of RDM Financial in Westport, Conn., says that while any positive news about consumers would be welcome, the market is likely to have just a short-term upward movement. “We want the consumer to be out there, we want them to spend,” Weiner said. “For the most part, however, we don’t see consumers going to pull us out of this economy because they are also paying down debt at the same time.” Investors are also concerned about retail due to the Commerce Department’s disappointing retail sales report for April, which took the market by surprise May 13 and sent stocks plunging.
Analysts say more stabilization in the housing industry is needed for a recovery to occur. A government report is also due this week on U.S. home prices during the first quarter of 2009. The housing data could be a big force in shaping investors’ attitudes. A housing recovery is crucial to helping boost consumer confidence and to allow banks to put aside some worries about eroding asset values.
Related posts:Consumer confidence drops for October
More strange indicators of the economy
The Pitch – Do you think the economic rally has stalled?
Tags: leading indicators, chapter 11 bankruptcy, economic indicators
