The economy is slower, that's a fact. The central bank efforts to keep the machinery lubricated with added liquidity is helping, though its obvious much of it is not getting into the industries that need it most. Among those are transportation and tech. The liquidity is finding its way into equities, probably through re-mortgages in the public sector, and lowered cost of risk allowing professionals to increase exposure. It became an accepted fact during the Clinton years that an economy can run without inflation at lower rates of unemployment than traditionally believed. Indeed, spending the previous decade's returns from paying down Federal debt and government free cash flow became the central issue of the last election. The current administration is dedicated to keeping the economic engine at high revs.. if possible.
Yet the econoomy is slowing.. the tech bubble, WTC, and what some feel was an economy already going into a down cycle is going to work its way through all industries. Housing, construction, industrial output, financials, bio, drugs.. they're all going to march down the same path before walking up the next hill. The techs went down furthest which is why they've had the best "bounce." The "turn-around" you refer to is a technical gambit on the charts.. stocks running up to but not exceeding resistance. The "visibility" that evreyone is looking for has bottomed at system maintenence, new enterprize initiatives are being taken on only if their advantages are obvious and don't tax precious revenue streams. Its believed by many the length of a down turn has some relation to the length of the previous up cycle. If that's true then we've got considerably more downside time.. with bursts of enthusiasm.
The large field understanding in my opinion is that all this new liquitiy will be shifting quickly looking for safe harbors, and fleeing just as easily.. VRSN is an example, its been considered a perfect hedge based on increased security needs, yet its off 14% in pre open. The defense sector, oils, consumer, bio-terror plays.. are all being artificially supported by liquidity. Normally liquidity leads to inflation, but I doubt it will happen until the economic cycle really turns and terrorism is psychologically and militarily and politically digested. Rising interest rates, commodity prices, and new orders will lead the way out.. tech will pop, financials will drop, housing will inflate until rising mortgage rates cut off new buyers.
Bottom line, choppy trading within technical bounds.. liquidity is a slippery sidewalk.
I also haven't been trading.. just trying to get work done. I'm wondering how private funding for startups is going?
Jim |
