Posted on 09/23/2009 6:44:26 AM PDT by SeekAndFind
Is it me?
I just can’t help but feel that there’s something the stock market’s missing about the economy. It’s a feeling I had back in 2007 as well. The market was marching giddily higher, right into October, and the whole time, I’m thinking to myself, there’s something wrong here. You didn’t need to know about derivatives, securitized debt, CDOs, CDS or mortgage fraud. Home prices had doubled in five years, wages were flat. It was the very picture of an asset bubble.
Now, I see a recovery that looks like Pinocchio: it wants to be a real little boy, but it’s really just a wooden toy that moves only when somebody pulls its strings. But everywhere, we hear people talking up the recovery as if the economy is sprinting into a new bull market.
Listen, I’m no PhD. I’m willing to entertain the idea that I could be wrong. There are a lot of smart people who probably think I’m wrong. Of course, there were a lot of people much smarter than me who were wrong in 2007.
But I keep seeing all those strings pulling the economy, and wonder if and when they can be cut.
For one thing, the stimulus programs that have come out of the federal government and Federal Reserve have underwritten the recovery. These include cash-for-clunkers, the first-time home-buyer tax credit, the Fed’s facilities for buying Treasurys and mortgage-backed securities, as well as its move to lower its federal funds rate to essentially zero.
Cash-for-clunkers provided a spike to auto sales, but the program has already expired, and the auto sales are already falling back to the levels from before the program. If the rest of the stimulus programs have a similar temporary effect, the economy may be stuck in its current state for some time.
Then there’s inventory replenishment. This is one of the biggest props of the recovery theory. Companies have been slashing inventory levels, and the notion is that once they begin restocking the shelves, it will provide a big boost to activity.
Through August, at least, this process had not started. Inventories were still falling, the Census Bureau reported. If September doesn’t exhibit some rebuilding, this plank will start popping some serious holes. For one thing, now is the time when companies start stocking up for the holiday season, which apparently lasts longer than actual seasons like winter (indeed, K-Mart and Target are already selling Christmas merchandise.) So we should already be seeing some inventory building. Shouldn’t we?
I can see this rally running through October, because the Fed is still underwriting the stock market, through the bond-buying programs, and money managers are still chasing returns, and likely will through their October fiscal years end. The Fed will still be buying MBS through year-end, but winding it down.
Washington’s hope is that the stimulus will eventually give way to a natural momentum that will pull the economy out of recession (and no matter what the President or Fed Chairman or anybody says, right now at least, we are officially still in a recession.)
But if that momentum doesn’t build on its own, if those props disappear, and at the same time holiday sales come in weak, well, that could spell trouble. Another thing to keep an eye on, of course, will be corporate profits. They should start looking better given easy comparisons to last year, but the market is building in a lot of upside there.
But maybe it’s just me.
Excellent. He about covers it all in this one, easy to read, article.
I am the National Sales Manager for a $50 million dollar fabricated metal manufacturer.
We have found the following dynamic:
Customers are buying much lower quantities and shortening their lead time (everybody expects it overnight).
We are doing far more transactions (we’ve expanded the customer base) but the total volume is still off from last year.
There are no signs of this changing. In fact, we expect this level to continue well into next year.
There is stabilization at a very low level, not recovery.
It’s getting to be entertaining to listen to the newsbraks at ABC radio news and the Glorious Hallelujah Choir exulting in excited tones the latest in a torrent of utterly fantastic economic news. Every hour is yet another blockbuster!
We, or most of us, are just not used to it yet.
However, some of the old and smart get it.
I read a report by Lloyds of London(I'd say they are the teachers pet of "old and smart"), that international shipping may never come back to the volume of the past few decades, just get used to it.
We, or most of us, are just not used to it yet.
However, some of the old and smart get it.
I read a report by Lloyds of London(I'd say they are the teachers pet of "old and smart"), that international shipping may never come back to the volume of the past few decades, just get used to it.
The little bit of stocks I had have been reaching for new highs almost daily but I cut and ran this week with 200+% in one and almost 300% in the other for the last 11 months. I don’t trust this to continue much longer.
Our overlords will continue to tell us things are getting better until we believe it. The beatings will continue until moral improves.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.