Ten Signs That This Is Not an Economic Recovery Daniel Englander May 06, 2009 1:30 pm |
![]() |
![]() |
|
||||||||||||
|
By nature, I'm an extremely optimistic person. One of the challenges of being in the investment business is managing your own biases, as well as juxtaposing them with the onslaught of biases produced daily by Mr. Market. It's in this fashion that folks who were bearish at S&P 700 are now bullish 900.
As a manager of a long-based investment partnership, and for that matter, an interested American citizen, I certainly hope this recovery is the real McCoy. But there are many reasons to be cautious, and they are as follows:
1. Company share prices are moving more on macro news as opposed to company-specific news. It's one thing for comments by Bernanke to drive share prices. It's quite another for a company to deliver good, old-fashioned earnings growth. Right now our firm is long on the former and short on the latter.
2. Poorer-quality stocks are rallying. Take a look at the highly leveraged companies -- real estate investment trusts (REITS), financials, commodity companies, retailers -- and your head will spin at the number of companies whose share prices have tripled in the past 2 months. This suggests they were priced as if they were going out of business, and the idea that they'll survive has provoked a massive buying spree. For sure, there have been many shorts decimated in this furious rally, which has helped fuel the fire. But after the frenzy is over, companies will ultimately trade for a fair multiple of the cash they produce. In too many instances, the growth in earnings needed to justify current multiples seems impossible to achieve any time soon.
3. Companies have too much debt. The deleveraging cycle is in full force, and my fear is it will take meaningfully longer than most people expect.
4. The government is propping up the system. Where would we be if the government wasn't backstopping the banks, auto companies, and commercial paper market?
|
|||||||
|
|||||||
|
|||||||
|
|||||||
|
|||||||
discuss this article and more on the mv exchange |
|
Get real-time options trading ideas from Steve Smith, veteran options trader and newsletter author, plus let him show you the way to cut risk and boost your returns through the strategic use of options. Click here for a free 14 day trial to OptionSmith by Steve Smith.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
| add rss feed | free article alerts |
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
DC
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennesee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Local Guides


















