Over the last couple of days there's been some media time given to the idea that we
are now at a long-term market bottom, and poised for a recovery in the economy and
the stock market. Nothing would better than a rosy future right about now, but the
bulls may be a bit early yet. There are still a few problems we need to work through
before we actually start growing again.
First, interest rates this low are great for borrowers, but not necessarily lenders
and builders. With mortgage rates hitting another new low, refinancing is at an all
time high. While sales volume has increased for lenders, margins have decreased
substantially with the drop in interest rates. Even though the real estate market is
strong right now with such low rates, new home sales were lower by 15% in January -
which is not great news if you're a home-builder. The issue to keep in mind is that
refinancing is NOT new home financing. Refinancing is a restructuring of debt. So, no
new money is being thrown into the economic wheel - we're just substituting fairly
cheap money for even cheaper money. On top of that, builders aren't getting a great
deal of revenue because of these record low rates. The point is, what looks like a
great economic stimulus on the surface isn't really that strong of a stimulus.
And if you think lowering rates again would help the situation, you may want to take
a seat. The Fed has said they are going to sit tight on interest rates until the
situation in Iraq comes to a resolution. They certainly have a right to change their
mind in the meantime (and there is currently even talk of lowering rates), but this
doesn't appear likely.
On top of that, the situation in Iraq seems to worsen every day. And each day it
worsens, the more costly it is. Current estimates put a price tag on the war on the
order of hundreds of billions, but the final cost won't be known until well after the
fact. Over the long haul, whatever that amount is will ultimately be put back into
the domestic economy, via military payrolls, defense contractors, etc. But in the
near future, the government will be picking up the tab, which means that we'll be
picking up the tab through taxes or reduced government spending. Less money in our
pockets means less money to use to stimulate the economy. (As always, we have no
political agenda or opinion on the merits of the military action in Iraq. We are
simply highlighting the potential ramifications.)
And finally, we already have many companies warning that they will not be meeting
previous forecasts for 2003. It's only March, and their outlooks for the whole year
are already lowered? At one point in time it seemed as if companies would turn in low
estimates, and heroically beat them. This isn't quite the case anymore, as most
corporations are playing defense with shareholders. With the likes of Enron and
WorldCom fresh in our memories, most corporations are working to be honest at all
costs. If you give someone a reason not to buy stocks, they probably won't. And as
such, if there are no buyers, there will be no rally.
There are other indications of weakness too, just as there are some indications of
economic strength. But based on the picture we're seeing now, there's no real reason
for growth. Any real economic recovery or stock market recovery is probably going to
be the months down the road - at least.
KEY SUPPORT AND RESISTANCE LEVELS
SUPPORT RESISTANCE
Nasdaq Composite 1250 1290
S&P 500 785 815
Dow Industrials 7425 7625
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
#forex4u - chat forex MIRC
O Clubeinvest.com informa que nenhuma da informação
aqui facultada deverá ser entendida como conselho ou recomendação
de qualquer tipo de transacção ou investimento.
