Thursday, December 16, 2010

It's A Good Time to Be An Investor, Not So Hot If You're a Citizen

I thought this piece from The Economist does a pretty good job of laying out the current economic/market conditions.

Fed Ex reported earnings that were below the consensus view of the Street this morning...but the stock has traded higher. To me, at least, this is a good indication that investors are feeling more optimistic than they have in years, since they seem to be willing to look past the headline numbers and focus on the potentially good news that might be coming down the pike.

Corporate America is thriving, but they are doing well at a pretty high social cost. Double-digit unemployment rates and meager wage gains are hardly the stuff of a happy populace (see: last month's election results). Yet from an investor's standpoint - who really should be focused on the financial health of the company - it seems to be not a bad time to be investing in corporations.

Here's an excerpt from the piece:

THE news out of the American economy keeps getting better and better. The country's trade deficit has fallen thanks to improved exports. Retail sales are beating expectations. Industrial production has been growing steadily, and service sector activity is growing at an increasing rate. Consumer confidence is up. And the Dow Jones Industrial Index has finally regained all the ground lost after August of 2008. The deal on extension of the Bush tax cuts led some major macroeconomic forecasters to revise 2011 growth expectations up to around 4%. The retail sales surprise this week led to similar upward revisions for fourth quarter output. It seems, at last, that good times are here again.

Except. Unemployment is at 9.8%. Over 6m Americans have been out of work for more than 6 months. Some 2m jobless workers will exhaust unemployment benefits by the end of 2010. Housing prices, nationally, are falling once again. Nearly 11m households have mortgages larger than the value of their homes. Consumers are still heavily indebted, which will constrain further growth in spending. So, should we be optimistic about the American economy or pessimistic?

The American economy: Finally, everything is good again | The Economist

The article goes on to note that the Fed did a good job last summer, when it looked like the economy was about to backslide into another recession. The problem becomes when the Fed runs out of ammunition, or loses political cover once Ron Paul starts a Congressional investigation into Fed.

Still, with the Fed still on track for QE2, and the Transport index confirming the strong up move in the Dow (thus confirming the rally, at least according to the Dow Theory of technical analysis), I think you have to tilt in favor of stocks.