1. Asia is still growing and spending
2. Unites States is still saving, not spending, by paying down mortgages
The problem is two-fold:
1. Corporations are still strongly incentivised to take jobs offshore because emerging market wages are still very competitive
2. Once confidence returns, Americans will resume spending. This will create some 'domestic service' jobs, but it will also restore to some degree the spending which caused the problem in the first place.
The focus of this NZ Herald article however was the strength of the Dow Jones. The problem with the Dow Jones as a measure of financial well-being is:
1. The US has greatly depreciated in the time since it bottomed; and some of those economies to which it trades, have therefore been impacted. The USD has likely bottomed I would suggest to you. Its at an all-time low against the Philippine Peso.
2. The Dow has benefited from a significant amount of monetary stimulus by the Federal Reserve
3. Interest rates are very low - so of course equities will out-perform the bond market.
The issue is whether yields are attractive; whether the stimulus will be sustained. Investors apparently think it will be; or are they going to capitulate in coming days, and send the Dow crashing back down? Time will tell. There is no reason to say that Americans will not resume spending at some time. There is every reason to think that the softer currency and immigration will not effectively recapitalise the nation, that higher taxes a nd restored activity will result in a budget surplus as well as more jobs. The question is whether confidence has returned. We'll see.
Is the time to 'invest in stocks' destined to come after a doubling in the market? Apparently Robert Pavlik, chief market strategist at Banyan Partners, thinks so. We are told that these equity price gains can be sustained because earnings have risen drastically. Well, we need to factor in whether:
1. Those earnings came from consolidation gains - taking over the competition - remembering that corporations entered the recession cashed up
2. Higher prices due to weaker US
3. These earnings can be sustained if there is an increase in taxes
The implication is that now is a great time for American Filipinos to move their savings to the Philippines if they are looking to retiring there, or simply to paid off any investments in property there. The USD is I suggest going to be stronger from herein, or at least after that support is reached.
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