Economic Cycle does not coincide with Stock Market Cycle
Its been months since the first case of subprime fall out and we have a slew of problems out from the US. Stock markets all around the world have been falling flat and investors who did not invest based on their risk tolerance are sitting the edge of their seats.
While i have wrote last week that we are at an inflexion point on the SP 500, this week was a pretty non event, that is, up until friday, when GE released a rather bad result and the problems of the Jefferson municipals.
How are we doing next week? very hard to say. But my feel is that we will approach the support again. Whether we will breach it or not its another story.
For a market timer that bets long and short long term, this is a frustrating situation, because it can really go either way.
donmihaihai highlighted this rather interesting part from William Nygren:
At a major bottom, current business news is usually terrible and many authorities feel that things are likely to get even worse. There are several spectacular bankruptcies, of international importance. Unemployment is usually up. There is usually some grave unresolved national problem that is bothering everybody. The brokerage business itself is likely to be in the dumps, with many bankruptcies. Big “producers” of the up years have to cut back on their lifestyles. Wall Street’s own desperation reinforces the syndrome. When in a market collapse everything finally caves in during a few catastrophic days and weeks, there is an almost audible flushing effect. Stocks are hurled into the abyss, like the cargo of a sinking ship that the crew is desperately trying to save. Value means nothing.”
Are we there yet? Hard to tell. We are hearing alot of this kind of talk and there are not many good news. However, I think we are not there yet. Next weeks earnings week should provide a clearer picture if there are more downside.
Finding that bottom ain’t easy at all. An obvious question is why would you be piling ur money in when there are so much bad news. A logical reason is that, the stock market is a good indicator of what the economic situation in the future.
In the case of an imtermediate term bottom, it is likely that there are still alot of bad news. The stock market will pick up before the economy does.
A good illustration of what to invest in during the economic and stock market cycle is below:
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
Comments
No comments yet.
Leave a comment