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First with Financial Comment from Arabia

Is this really a US recovery?

with 4 comments

So a statistically immaterial 36,000 jobs were added in the United States in February. A few more consumers went to the shops than a year ago, although consumer sentiment reports have turned strongly down.

Yet if we are really to talk in terms of a recovery then the question is how long it will take to get back to where we started. That 9.7 per cent official unemployment rate is over 15 per cent when long-term unemployed are added. When is it going to return to pre-cash levels?

Bottomless recovery?

Well, actually there is still good reason to believe that the bottom has not been touched yet. All the recent figures have pointed to a further deterioration in the US housing market with millions of foreclosures to come over the next couple of years.

It was the US housing market’s sub-prime lending crisis that caused the recession. Recovery cannot happen without it bottoming out at the very least.

What about US auto sales of 10 million vehicles a year? That is still a third less than before the crisis struck.

So we cannot even be sure that this is the bottom of the trough in US economic activity, let alone begin to calculate how long it might take to get out of this depression in GDP.

Wall Street sees it differently, and is way too far ahead of reality. It is pricing in a rapid recovery that is just not in the figures if you care to look at them with a cool head.

Stock dividends are half their long-term average. That means as soon as interest rates rise stocks will immediately move lower, and suggests 50 per cent over pricing just on mean reversion, and remember the old law of mean reversion in financial markets.

Poor returns

Investors are presently being offered very poor dividends for assuming a lot of downside capital risk in equity markets. The same could also be said for bonds and real estate.

Only lower interest rates could really power capital values higher, and how likely is that with the Fed close to zero? No the truth is that asset values will have to correct sooner or later to reflect the real cost of money, that is to say what businesses actually have to pay for their finance.

Only the easy money of the central banks is propping up asset values, and the cracks now appearing in the bond markets of the world suggest that this policy will not be sustainable for very much longer. Then bonds, equities and real estate values will reset. That is why risking capital in these markets now makes no sense.

Click here for the follow-up article.

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Written by Peter Cooper

March 6, 2010 at 9:31 am

4 Responses

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  1. @Andy:
    Actually, you answered your own question; you’ve obviously “done your homework” and you realize that the market is being heavily manipulated. It’s actually amazing to see the US stock market continuing to have “good days” when the volume is so low! GS and JPM enjoy breaking the laws of physics here!

    @Anthony:
    Speaking of the “need to do one’s homework”, it shocks me that you would write a commentary as shown below, without studying WHY the market is behaving as it is. Since you’ve taken the time to peruse Peter Cooper’s web site, maybe you’ll spend a few minutes to understand how the US government is manipulating the US stock and bond markets (and other markets as well). See below!

    For Those Who Wish to be Informed:
    Yes, the US market is going up when it shouldn’t (i.e. on very low volume); this is due to a technique known as “After-Hours Market Goosing”. So now, everything is “being rigged”. As one of many “very seasoned” NY traders have said, “the entire global economic, financial and monetary system has been ‘Photoshopped’ just to keep up the appearance that everything is fine.”

    How it Works:
    Via the back door, the US government provides massive amounts of money to GS and JPM to buy Dow Futures, S&P Futures, etc., not only during normal trading hours, but in the After Hours markets as well. It has been scientifically proven that all of the market gain (yes, ALL) from September 2009 has been due to this “after hours goosing” on days when their has been small volume. For details, go here:
    http://www.zerohedge.com/article/three-month-flat-market-yesif-you-exclude-constant-after-hours-manipulation

    obewon

    March 6, 2010 at 7:48 pm

  2. In response to Anthony, the US now has Billions of dollars from the stimulus package and quite a bit of the banks already paid back the funds to the government. With not much growth going on in the US and all that cash from the stimulus package sitting on the sidelines the money has to go some where. Since the financial sectors are hurting in the US and the US can’t survive without the financial sector they inject those funds in the financial stocks.

    When buying from the fed takes place it is quite visible when you have a good trading platform running. You can pretty much see all the transactions taking place unlike watching the trading platform on DFM.

    In reality everything is bad and should head downhill but will the fed just sit there with all that cash on the sidelines and watch everything tank??? The day the market crashes or corrects is when the fed pulls the plug and exits. Until then we won’t be seeing any crashes taking place. The FED,MS and GS among a few of the other big boys are pretty much the only ones that know when they are going to pull the plug. My guess is that in order for the balloon to pop you have to inflate it first and then over inflate it in order for it to pop. To crash it needs to pop. Will need to be at around 12000 in order for it to crash but at 10000 we may see a small deflation.

    Andy

    March 6, 2010 at 5:22 pm

  3. Do you not ever possibly get bored of being wrong? I seem to remember reading this blog in August and the imminent crash to end all crashes was coming. This week )or was it last) was going to be the end of all ends. What you say, with regard the shocking data still out there and it is all a 100% correct, but everyone knows that and yet stocks keep going up? Maybe you should start querying why that is the case rather then continually (and wrongly) forecasting a future crash. Afer all,if you say something long enough and often enough it will inevitably be true. But how much have you missed out on in the meantime?

    Anthony

    March 6, 2010 at 12:58 pm

  4. I can’t believe how the freakin market rallied before closed. Talk about an invisible hand squeezing out all shorts from the market. It is beyond obvious that manipulation is taking place in US markets with the most obvious for this last week. I can see a further rally towards 11000 and then 12000 in the near term to squeeze out all shorts from the markets. As I said before, I guess it is better to join the ride up rather than to fight the trend.

    Ed Note: Investing at the top never works – this just has to be some sort of top. A patient short will be hit hard but rewarded later many times over. Timing that position is impossible – being in the right place when it happens is essential.

    Andy

    March 6, 2010 at 10:57 am


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