Wednesday, September 15, 2010

Where are we headed to now ?

Well it's been a while since my last post.

Markets have been bullish across asset classes. Equities, Bonds and precious metals, all rallying at the same time!!
U.S. unemployment numbers as well as the continuing slump in the US housing market continue to be worrying reminders that all may not be well with the global economy.

David Rosenberg recently reminded us that the U.S economic recovery has been largely dependent on government support (think mega bank bailouts, cash for clunkers, food stamps, infrastructure funding packages etc). By this stage of the game and given the extraordinary stimulus packages of the last two years, the economy should have been growing strongly.

Instead it looks like the U.S. economy is unable to survive on its own, given its slumping home prices, high unemployment numbers and high consumer debt levels.
Even Ben Bernanke is looking to cut growth forecasts while remaining silent about the eventual withdrawal of 'fed support' for the economy.

The FED & GSE's continue to support the housing market, even as home prices continue to remain weak.
No government in the western world can risk withdrawing its support for the ongoing ''fragile'' economic recovery. In fact, many are contemplating another round of stimulus packages to head off a slowdown in the second half of 2010.

Here's a quick roundup -

  • Gold and Silver are on a surge yet again, after trading confidently throughout this summer. They appear to be overbought in the near term, especially silver which has had an almost vertical rise over the last fortnight.

  • US Equity funds continue to see outflows, while US debt funds continue to see further inflows.

  • US Equities have been rangebound in the 1030-1130 range on the S&P 500.There have been multiple corrections and rallies and despite regular tremors about the Club Med economies, the Euro and the state of finances of the states like California in the U.S.A --markets have chosen to ignore any worrying news.

  • Emerging market equities are rallying again and decoupling theorists are back to claiming that the BRIC economies can thrive and grow despite global headwinds.

  • The Indian equity market has been an outperformer in 2010 YTD. The rally is spreading to the mid caps and small caps. Overall the markets appear to be factoring in growth rates that may prove to be a tad unrealistic, especially if we see any turmoil in the ever slowing western economies

Overall, I continue to be wary of the ongoing rally in equity markets that seem to refuse to acknowledge poor economic data as well as the total lack of confidence on main street (especially in the developed world).

Are equity markets adequately factoring in a possible slow down in the second half of 2010? - I think not

Remember, it's better to be realistic that hopelessly optimistic.

I am still bullish on precious metals. We are also entering a 'seasonally strong' period for precious metals. Caveat Emptor - A sell off in equity markets will trigger a sell off in precious metals.

Expect upcoming posts on Gold, Silver and Indian Equities in coming weeks.

No comments: