Monday, September 12, 2011
is this the double dip we are looking for
In my opinion, there is a double-dip in the stock market but not in the global economy. The reason for the stock market to decline precipitously is that all the money that has been pumped in - QE I and QE II - were not put to productive use. Rather, they were used to give stock prices a boost. When the underlying does not improve, stock prices that are pumped up using borrowed money, will have to obey the law of gravity. This is what we are seeing the past weeks.
What about the economy? In my opinion, it was hardly out of the woods when the whole thing began. When I say the whole thing, I am referring to the fact that we were entering the down phase of the business cycle. The fact that America has not been able to sort out its credit woes, with the mortgage sector the most important one, economic activity in the the number one economy had to revert to a realistic condition. That is why despite the Obama's administration best efforts, job figures are still as bad.
Will the stock market get better? Based on recent events, I would think that things will get shakier before getting better. Sub-2,800 levels of the STI looks like a decent range to be trading in. Once all the big money is flushed out of stocks and into other asset classes, that is the time to get in.