Cash flows and cheap money are enough to keep the current rally going into 2010, I believe.
Comparisons with really, really weak quarters in the first half of 2009 for global economies in general and for company earning in particular favor a continuation of the upward trend in stock prices in the quarters that end in March and June 2010, I believe.
After that, though, things begin to look decidedly dicey—unless investors can see clear signs that the growth we’ve seen in the last half of 2009 is sustainable and is building momentum.
On that, unfortunately, the jury is still out.
Take recent numbers from the North American steel industry, for example.
In October steel inventories at metal service centers in North America climbed by 150,000 tons, or about 2%. October is historically a month when steel inventories fall. The average October decrease over the last five years has been 162,000 tons, according to Deutsche Bank.
The rise in inventories could be a sign of a lack of demand. After adjusting for the extra day in October, shipments fell slightly from September and they’re down 27% in volume from October 2008.
But the rise in inventories could simply be a sign of restocking after sales depleted inventories to historically low levels. The October inventory level of 6.9 million tons is far below the August 2008 inventory level of 12.7 million tons, Deutsche Bank notes.
In which case the rise in inventories isn’t a negative signal at all.
That latter interpretation is scant comfort though because what’s missing from this picture is a clear signal that demand is picking up.
That’s exactly the kind of evidence I need to see if I’m going to make the transition from an investor who is nervously riding a rally that he doesn’t believe in for six months or so to one willing to invest in the long-term fundamentals of an economic recovery.
And that’s exactly the kind of evidence that I haven’t seen so far.
robert1234,
Your guru is wrong.
There is plenty of historical evidence that jobs growth trails economic growth. Housing is part of the US economy but certainly not basis of the economy.
Manufacturing (your “industrial base”) has declined as a percentage of the economy, but that occurred long before the unemployment rate went from 5% to 10% as a result of this deep recession.
It is always wise to hedge against the worst, but no need to lock down in the bomb shelters just yet.
My guru says that we will see an economic recovery when we see a steady month by month growth in jobs numbers.
With the growth in jobs numbers will come a rise in building permits, which will signal a rising demand for household goods. Which will signal a recovery.
He says the US economy is built on housing, and until it comes back, the economy will not come back.
My guru say, because we have exported our industrial base, and with it the jobs, and we have replaced that with debt ( he calls that financial services ) the jobs ain’t gonna come back.
I hate to look at the dark side, but I think from here, it’s is only going to get worse.
Take a look at FORBS Magazine, November 16, 2009 Page 26, it is an article by Ron Paul Titled: Be Prepaired For The Worst .