US Recovery Continues in 2010
But don’t smile too wide; It may be awhile before we notice.
Our friend and Business Associate David Bell with Wachovia sends an update every few weeks to shed insight on various financial topics. Here is a recent summary:
1. Asia is leading the way in the global recovery. Not only did most Asian governments respond to the financial crisis with large fiscal stimulus programs, but the financial systems of most Asian economies did not blow up in the autumn of 2008 because they were not highly levered a that time.
2. We have stated repeatedly we believe the recession ended around the middle of 2009. Any further conclusions, however, are decidedly less clear.
3. Unemployment is expected to remain above 10 percent for all of 2010.
But with all of these facts and figures…
Many people I speak with are perfectly perplexed about where the economy really is. On the topic of the stock market, we see that the indexes have risen as much as 70% from the recent lowpoints. On other topics, we hear that unemplyment numbers are getting worse, new home starts are at the worst in 40 years, and foreclosures are expected to rise again. So how can one sector of the economy do so well and others be failing miserably? The answers usually involve comparing the words “Expectations vs. Reality” and “Projections vs. Historical Data.”
Explanations
Stock prices (thus indexes) are, quite simply, the value of the future cash-flows of a company. Since few of us know for sure what will happen tomorrow, traders base prices on what should happen and not necessarily what has happened.
Home prices, unemployment claims, and unemplyment rates are factual data based on what is happening in a market. Houses do not sell based on expected future values and unemployment rates do not count those who may loose or gain a job in the future.
So what we see in an improvong economy is a lagging effect. The stock market goes up because buyers of these securities expect the economy (thus cash-flow) to improve over time. Currently, home prices, foreclosures, unemployment, and salary reduction seem to be a way of life for many of us and create uncertainty in the market and though we see improvement in the stock market, we are all yet to feel the positive effects of such.
My Perspective, basically.
Economics, Data, and Analysis are topics that get me excited about being in real estate but I am usually the last one invited to a cocktail party for fear that I may speak from the heart with a bunch of bologna nobody cares to understand. Economics can be extremely complex, just ask the guys on TV. But here is the question you and I should ask ourselves (and why you should not be afraid to ask me over for cocktails).
If you want to know how the economy is really doing: Go to the mirror and ask yourself if NOW is the time to purchase a new car, a new TV, a new house, life insurance, buy a boat, go on a 10 day cruise, etc. If you are concerned about salary reductions, being layed off, lost values in your 401k, or can’t sell you home; regardless of the stock market, the economy is ________, to you. Ask your family and friends if they are ponying up cash for a major purchase, they’ll tell you where the economy is, today. The stock market will tell you where the economy is heading.
