Simple. Right now every company is realizing that their inventories were slashed to zero. So companies like CAT have even come out and said that even if sales stay flat OR GO DOWN, that they still have to buy non-stop steel to build enough product to meet demand. So who is selling them the steel (and across all industries, all basic materials)? Well, the steel companies, which have employees, managers, are hiring people non-stop right now, etc. And all the other basic materials companies. These employees will be the beginning of the new consumerism, which will spread from basic materials to healthcare, to IT, etc, like it always does. People are saying "this time its different" or "We are in the new normal". But thats the surest recipe for losing money.
I agree. But that will change, like it always does after a recession, as banks get comfortable with their capital base and with the economy.
I'm going to have to disagree. With respect, this is a very simplistic overview of how a recovery works, and is ignoring everything from debt to housing. Materials companies are not going to be able to put a dent into this unemployment rate. Sorry. Perhaps the Census can help you? Take away the Fed money, and the market completely collapses. That is what is driving this "recovery". Nothing else.
The fed basically stopped buying mortgages a quarter go and yet yields are still at lows (even though the official buying just stopped there is no evidence they were doing significant buying the past 3 months). And actually, all the employment numbers are suggesting that inventory rebuild is having an effect: workweek hours are up, temp workers are up, parttime workers are up - all precursors to fulltime employment. This is the same playbook that occurred in 2003. Housing: Case-Shiller index has been up for the past 6 months in a row. As Shiller states, housing prices trend and even though, of course, anything can happen there's no reason to believe this time will be different. Debt: Personal savings rates are positive (as opposed to negative, where they were at the peak in 2007). And so far there hasnt been any correlation between national debt and the stock market (if anything, they are positive correlated, like in the 80s).
I think you ignore that consumer spending is not increased just because someone has got a job. Its about whether that income will be able to support ones life style and leave anything left for discretionary spending and I doubt this is gonna be the case no matter how many people you can bring back into employment. Leverage will never be what it was and most consumers will permanently change their spending habits whether forced or whether its because they expect rates and/or inflation to creep up.
buddy, you are awefully often looking backwards instead of analyzing where we currently stand. If you spend a second to look at all the global inflation gauges then you probably noticed that low rates environments just ended. No matter what equity markets think, no matter what households think, most central banks first priority is the reigning in of inflation. Globally inflation markedly picked up for the first time in the past couple weeks and those changes have already marked a significant turning point. There is no way that central banks can go forward with low rates. Believe whatever you want but when you raise rates soon there is no way households are able to support an increase in consumer spending no matter what the unemployment rate will ultimately be in the end of 2010 and 2011. About housing prices you are actually partially wrong, prices have been ticking down again for some time.
A) historically, when rates are being raised from an initial point thats very low thats been highly correlated with the market. e.g. the 90s and 2003-2007. B) the Fed has never raised rates in a non-neutral employment environment. With 9.7% unemployment we are far from neutral. Doesn't mean they won't raise rates but its unlikely rates will go up fast to stem inflation. C) inflation is not necessarily bad for the market. Over 40% of the S&P 500 revenues come from abroad. A weaker dollar will only improve our export situation (and our consumer situation in the long run). Lets not forget we are at 0% rates at the moment. I hope they raise rates. But its not like we are going to 8% rates within the next year or even the next few years. More than enough time for the market to go up and the economy to blossom. I agree we dont want to look too far in the past. But don't look too far into the future either. Right now things are looking good: - positive GDP growth - employment situation getting better - savings positive - housing stabilizing according to Case-Shiller - ISM up - earnings beating expectations across the board - inventories getting restocked for at least the next 1-2 years to counteract the effects of "The Great Liquidation".
I think we can both agree the Fed is in a predicament. Inflation-> Rates -> Housing/Mortgages vs. unemployment -> consumer spending -> rate decision I believe globally, but also in the US, inflation will force most central banks to hike rates more aggressively than the employment market warrants. Different arguments can be made, but at the very least I dont buy into your rosy painted picture of the markets. And I dont buy into inventory buildups as a driver of what we have seen nor where we gonna go from here.