This is how a recovery begins.
A few months ago it seemed like there was no end to the downward spiral. More than 20,000 people were losing their jobs every day. The stock market was steadily falling. Panicked consumers were cutting back aggressively. The government pushed through $787 billion in emergency stimulus spending under the guise of getting the economy going again.
Here we are a few months later and a few things appear to be turning around. Everyone is spotting those “green shoots” the Fed Chairman told us to look for a few months ago.
Consumer confidence has risen for three months in a row, albeit from exceptionally low levels. The stimulus spending is finally starting to reach the economy (although less than 6% has been spent so far). Home sales are picking up and lining the pockets of realtors, mortgage brokers, and banks while allowing a few people to get out from underneath their mortgages.
Most importantly though, the market rally continues to hold on to past gains and add more. Remember, the wealth effect created by the stock market is incredibly strong when 70% of adults own stocks directly or indirectly.
Now we’re seeing the first glimmers of it all starting to pay off in the real economy, specifically in employment. On Friday, the Bureau of Labor Statistics reported an estimated 345,000 jobs were lost in May as the unemployment rate marched up to 9.4%. Granted, the loss is still far from good, but it’s a welcome relief to the 500,000+ monthly losses reported almost every month since last November.
It’s like the old saying goes; you’ve got to start somewhere. And right now the economy is slowly getting restarted.
Investing In Commodities: Window of Opportunity
All of that is a big reason why I’m continuing to recommend to buy stocks. It’s not because I believe this is going to be a true economic recovery where in two years we’re right back to partying like the 90’s. I don’t think it’ll be even close. There are just too many hurdles in the long run.
The auto bailouts are the perfect example. I’m confident they will prove to be an absolute disaster. Mega-mergers merely hide problems. The mergers rarely fix any of them and, quite frankly, there’s no reason to expect this time to be any different.
Just think of how well the last time Chrysler merged. The creation of DaimlerChrysler was a decade of headaches which never helped anything.
And then there was the Ford buyout of Jaguar and Land Rover. There were early “successes” through immediate cost savings and synergies, but that ended up in failure too.
Although they’re always touted as “this time is different,” big mergers rarely work out. Whether it’s combination of cultures, political jockeying in the boardrooms, or any other number of factors, they mostly all end up the same way. Mergers are not a solution. They’re merely a temporary, quick fix which just delays dealing with the real problem.
Of course, it’s not just the autos though. There’s still a big and growing problem with unemployment. Despite yesterday’s relatively good news, unemployment is still on the rise.
At the current reduced rate, the headline unemployment rate should be over 10% by the end of the summer. Then add to that the “real unemployment rate” with discouraged workers (people who just gave up looking for a job) and underemployed workers (those who are working part time or in a different field), and you’re looking at 15% or 16% of the country without jobs.
Basically, there’s no way to get back to the days of 3% or 4% annual GDP growth rate which facilitated very high-paying jobs and a risk-taking entrepreneurial culture with unemployment so high.
Then there’s the next wave of mortgages, the sharp spike in interest rates and the eventual impact on the housing market, Eastern Europe heading for a meltdown of Icelandic proportions, and on and on.
But here’s the thing. The market doesn’t look that far into the future. Wall Street is very short-sighted. Too many individual investors don’t look that far away either. After all, two years (about 500 trading days) is a very long time for folks who check their stocks every day. That’s why I try to look both at the short-term for when to buy into something and the long-term for what to buy.
And right now, I’m as bullish as ever on these three sectors for the short term and the long-term.
Article Directory : http://www.articlecube.com
Andrew Mickey is a well known name in the world of finance and investment. Prudent investors can get his investment ideas, help and guidance and take investment lessons.
