With economic reports and earnings numbers being released this week, we have been on a financial roller coaster. With regard to earnings numbers, we had General Electric disappoint, but IBM beat expectations and gave positive guidance for the future. Inflation numbers are high, but core inflation seems to be under control. The economy continues to deteriorate but does not seem to be falling off the cliff. How does an investor interpret all this? Is the glass half-full or half-empty?
The economy is clearly experiencing pain from the credit crisis. Even if we are not in a recession, it sure feels like one to the average person. Pessimism is the watchword of the day.
However, the big question is how much of this is already discounted by the equity market? I believe that the answer is that much of this is already built into market expectations. Unless we have another run on a major financial institution, the economy goes into freefall, or major oil supply disruption occurs, the market is already discounting most of the negative information.
In addition, we are approaching the November election. With a Republican in the White House and Democrats in control of Congress, no one wants to be blamed for a bad market or economy. The Fed is injecting a massive amount of liquidity into the system, and the tax rebates should be arriving shortly.
Does this mean a rally will arrive soon? It is a possibility. However, remember that the credit problems still remain. Any solutions will only be addressed after the election. The key variable is the rise in oil prices which is driving inflation. In the short term, it acts as a tax on the consumer and limits the Fed's options. As long as oil prices continue to rise, any rallies are likely to be muted and short-term in nature.
Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com and the author of Follow the Fed to Investment Success: The Effortless Strategy for Beating Wall Street. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.
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Reader Comments (Page 1 of 1)
4-17-2008 @ 6:00PM
william lindblad said...
The glass is half empty - and it is leaking.
The economy, which so much was consumer driven, is slowly bleeding to death. The consumer is pessimisitc, budgets being pushed, jobs uncertain and corporate American will soon feel the pain. The only thing supporting the failing structure is export and optimisim. The dollar continues to fall and other currencies are on the rise and it is only a matter of time until the investment mecca of the U.S. becomes overshadowed by greener pasture. Europe has inflation. China has inflation. The U.S. is not insular and we are sure next. You cannot buy a piece of clothing that is not imported and the current prices cannot hold much longer. It's next because it is a necessity just as much as fuel and food. At the present rate the Fed will have to change course in the very near future and the real recession will begin.
4-17-2008 @ 11:27PM
Lacey said...
79% of all American hotels are owned and operated by Indians or other foreigners. 86% of all convenient stores are owned by foreigners--mostly Indians. Dell, Macy's, AMERICAN Express, even AOL have moved major portions of their call centers to foreign countries...mostly India.
Why aren't we reclaiming our country? I always ask before making a reservation if a hotel is Indian owned or not!!!! If it is INDIAN owned, I do not stay there! SUPPORT AMERICAN owned and operated!!!!
America is selling her soul to China and India and our children and grandchildren will suffer for it!
We are headed to Third World status, while making Indians and the Chinese rich. Everyone seems to be complaining about it, but not too many people are boycotting companies that are sending jobs and money over seas!
WAKE UP AMERICANS!!!
4-18-2008 @ 8:29AM
Raymond Barcelos said...
I think the big culprits are oil and the fall of the American dollar. If you look at gas prices going up seemingly daily and the Euro-dollar going higher in value as well you have a major problem in the American rconomy. I f we pay $4.00 a gallon for gas how do we have any money to spend on things we can do without. If nothing else Americans are learning to be more conservative with their money and realizing that yes, they can do without a lot of this junk from China. Maybe we will even learn to save more money in the future,once the recession ends.