Trade DiaryThere has been a huge amount of speculation over the end of the recession and the V shaped recovery that may ensue. The apprehension in the market comes from the uncertainty of the fourth quarter this year and how the Christmas shopping season will pan out. From my vantage point I see what could be the basis of a good recovery but then a set of figures comes out like the US monthly consumer credit report which adds to the doubt in my mind. I can’t balance the equation of rising unemployment, consumer retrenchment with rising corporate profits and runaway equity prices.
I think the resilience of the consumer is something that can’t be underestimated. The fact that consumers have been enduring economic turmoil for over a year now may also create the need for an emotional break in for form of splurging at Christmas. For this reason I think spending will hold up into the shopping season and whilst consumers are savvier and shrewder I believe that most will let their hair down over the holiday period and ignore the perils till next year.
This leads us nicely into next year where I believe that the reality of the current situation will reveal itself. Companies have been slashing costs, staff and anything that isn’t core to the running operations but this tactic only goes so far. With funding still a problem for most small businesses I believe next year will spell the beginning of another round of large jobless numbers. With this comes the problem for the US administration who have used up their congress good will and may find it hard returning for more stimulus.
The central goal achieved by the stimulus was a shot in the arm of a cardiac patient who has stabilised and shows signs of recovery but another episode could easily occur if the underlying problem is not addressed. The Administrations states its stimulus has created close to 700,000 jobs although this is heavily challenged by the sceptics. The fear is that there is no central program for job creation. It’s past the point of no return for the Administration and their hopes rely on the consumer who is in a fragile state.
I believe once we are past the Christmas period analysts will scurry to increase estimates for corporate growth which will lead to an unattainable goal for the consumer who ultimately entrenches following a harsh January where the bills flood in. My opinion is that once March arrives dire numbers will be reported and a return to reality will dawn.
Some of this is reflected in the price of gold which has risen above $1,100 showing the level of mistrust the market has. Whilst larger companies have been using the past six months to optimise performance a lot of smaller companies have been struggling to keep the doors open. Another blow to small business could result in a sizable increase to the unemployment numbers which the Administration has no plan to address. Unemployment could rise to 12% or in real terms accounting for all those who gave up or are off the list could be as high as 17% by the second half of next year. With those types of figures any talk of a V shaped recovery will reveal that the current rally was a great run but no bull.
I have been sitting on cash for months now and whilst I have missed some amazing opportunities which I do regret I don’t think the last buying opportunity is over. At this stage another 5% to 10% upside is possible but many stocks are pushing their 52 week ranges and at these prices I don’t see much value over the long term. However if you are a short term trader 10% is still nice to have and a Christmas rally is a high probability in my opinion.
Safe trading and keep your losses small.
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