As we enter October We'd like to examine what is taking place in the marketplace. Since our last post, the Dow has fallen and risen and fallen and risen again. It now stands at about 10,800. This seems to be a reasonable level for the summer-to-fall of next year. Having said that, many observers do claim that the major indices tend to lead by one year out. But what strikes us most is that it has risen to this level on light volume which suggests that institutional investors, pension funds and other major investors remain seated on the sidelines. As well, recent reports of a 4 week moving average on unemployment have risen to 465,000 or so. What's interesting here is that in order for the economy to (really) start growing again, we need to be adding that many jobs instead of filers asking for benefits......Please think about that for a moment and let it sink in....... Now, this has been going on for about a year or so and it is unlikely to suddenly begin a major sharp reversal.
On top of that, the Fed continues to announce (as of Sept. 20th) that the housing market remains weak as the housing credit expires, employers are still reluctant to add staff as they NEED to cut costs, there is still a slowdown in business investment and that there have only been modest gains in consumer spending.
There are also renewed fears surrounding the (PIIGS--Portugal, Ireland, Italy, Greece and Spain). Will there be another German and French bailout?? Will the IMF or Worldbank come to the rescue with higher interest rates?? Will there be more austerity measures to be carried out followed by riots?? Ireland just announced that it needs to add billions more to its own banks. Spain's public debt has just been downgraded again. Remember that Spain carries an official unemployment rate of around 20%. Unofficially, near 30%.
Over here in Japan, the yen is so strong that the government has 'likely' intervened twice just recently in order to stall the yen from rising so fast that no one wants to buy Japanese products as they become too expensive leading to deflationary pressures.
Now to Gold, it is still seen as a safe have and often moves in the opposite direction from risky assets, such as equities. It has been reaching new highs as of late. If buyers of gold thought that equities would be a better investment than they would be selling gold, not buying it. This is yet another indicator that many market players expect US equities to languish or fall going forward.
But let's take a look at the reasons for the market to run higher shall we??
It does seem that world leaders have been able to come together relatively quickly and devise a plan that will help out as we scuffle along, or near, the bottom of this recession. Remember, our shopping behavior makes up roughly 70% of the G-7 economic value while government spending and trade make up the rest. The actions that governments the world over have taken have been calculated to the best degree they could have been. The government has done, and will continue to do the best it can with what it has to prevent an all-out depression. Maybe it is this idea that has pushed the market up to its recent levels....who knows??
But we still believe markets will likely fall from these levels and yet again, this will present some with the 'right time to buy' into US equities. Join us at NPFisher to find out why we think the US is still the best place to be invested in equities--even foreign equities!!
NP at NPFisher!
