Is the economy turning around for real
The last few weeks have been interesting when it comes to economy. Instead of green shoots, the experts are suggesting that there is a real positive momentum with regards to growth and things are going to get better. The consumers have started spending more and the housing sector has started to turn around.
Looks like, the economy which was destined for a free-fall after the fall of Lehman brothers has found a floor and has started bumping again. But it is time to ask this question - are these good stories for real? Will it be sustainable? For example, take the housing sector - here the first-time buyers are rushing in to claim a tax credit that expires by the end of this year. This proposal has definitely boosted the housing sector (at least for the houses, that a first time buyer can afford - not all the houses, read mansions) but is this a long-lasting recovery in the housing market? Another example - take consumer spending. This consumer spending metric includes the purchase of automotive vehicles. This has been driven primarily by the "Cash for clunkers" program. We have to see if these good stories were true because of government programs or the long road to recovery has started. Only time will tell.
AIG, the much maligned insurance company for all the right reasons, has suddenly become a favorite of the investors. This company's stock experienced a three digit percentage growth (>200%) in the last several weeks and also turning in a profit in the most recent quarter. Suddenly, how come this company has become so favored by the investors when a few months ago this was pilloried as a poster child of bad behavior - I do not know. Its stock was trading for less than a dollar and the government owns more than 80% of AIG. Is this because of some short covering or any fundamentals - let's wait and see.
My personal prediction regarding stock market - DOW will settle down to 9000 or 9200 by the end of the year. It may have overshot a little bit with a lot of investors taking risks expecting returns that they saw in 2007. But still the most fundamental metric, earnings - is not in line with whatever the earnings were in 2007 and the investors should not price the stocks at some unreasonable multiples. Eventually, commonsense will drive the investing decisions and we will settle down to some number between 9000 and 9200 by the end of the year.
Prediction regarding economy - The economy will grow - albeit the growth will be a jobless one. The unemployment rate will cross the double digits and by the second quarter of 2010, the unemployment will start decreasing slowly. Since US economy is directly correlated to the well-being of the consumer, [70% of the GDP is due to the consumers] the growth in US economy will be extremely sluggish. It needs some kind of innovation spark like the dotcom boom to bring down the unemployment to levels below 5%. Let's see what will happen....
Looks like, the economy which was destined for a free-fall after the fall of Lehman brothers has found a floor and has started bumping again. But it is time to ask this question - are these good stories for real? Will it be sustainable? For example, take the housing sector - here the first-time buyers are rushing in to claim a tax credit that expires by the end of this year. This proposal has definitely boosted the housing sector (at least for the houses, that a first time buyer can afford - not all the houses, read mansions) but is this a long-lasting recovery in the housing market? Another example - take consumer spending. This consumer spending metric includes the purchase of automotive vehicles. This has been driven primarily by the "Cash for clunkers" program. We have to see if these good stories were true because of government programs or the long road to recovery has started. Only time will tell.
AIG, the much maligned insurance company for all the right reasons, has suddenly become a favorite of the investors. This company's stock experienced a three digit percentage growth (>200%) in the last several weeks and also turning in a profit in the most recent quarter. Suddenly, how come this company has become so favored by the investors when a few months ago this was pilloried as a poster child of bad behavior - I do not know. Its stock was trading for less than a dollar and the government owns more than 80% of AIG. Is this because of some short covering or any fundamentals - let's wait and see.
My personal prediction regarding stock market - DOW will settle down to 9000 or 9200 by the end of the year. It may have overshot a little bit with a lot of investors taking risks expecting returns that they saw in 2007. But still the most fundamental metric, earnings - is not in line with whatever the earnings were in 2007 and the investors should not price the stocks at some unreasonable multiples. Eventually, commonsense will drive the investing decisions and we will settle down to some number between 9000 and 9200 by the end of the year.
Prediction regarding economy - The economy will grow - albeit the growth will be a jobless one. The unemployment rate will cross the double digits and by the second quarter of 2010, the unemployment will start decreasing slowly. Since US economy is directly correlated to the well-being of the consumer, [70% of the GDP is due to the consumers] the growth in US economy will be extremely sluggish. It needs some kind of innovation spark like the dotcom boom to bring down the unemployment to levels below 5%. Let's see what will happen....
posted by DK | 9:23 PM
0 Comments:
Post a Comment
<< Home