Mirror, mirror, can you tell me, who has the fairest market forecast ?
The good...
dismal.com
The continued health of construction activity is vital to the future direction of the economy, given that during economic downturns declines in construction activity generally account for one-half of the decline in real GDP. Though few builders anticipate explosive growth in construction spending this year, construction activity is expected to hold up reasonably well in coming months, in part because markets were not subject to the kind of rampant overbuilding that plagued real estate in the late 1980s, and in part because interest rates are low enough to support continued building. While signs are that the late-2000 drop in cement shipments is already beginning to turn around, helped in part by healthy TEA-21 spending, monthly cement shipments will be one of the key variables to watch in ascertaining whether the economy is heading toward a rebound or further distress, and what regions of the nation are pulling ahead or falling behind.
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The bad...
(not too bad for the market, but for the economy)
dismal.com
for the market:
The investor sentiment index published weekly by the American Association of Individual Investors (AAII) suggests the market may be on the mend. Despite what many might think, however, a resurgent stock market may not be the answer to our current economic woes.
The AAII Index measures the percentage of individual investors who consider themselves "bullish", "bearish" or "neutral" on the stock market. For the week ending April 11, bearish sentiment continues to climb, while bullish sentiment wanes. In fact, the bull-to-bear ratio is at its lowest point since 1998, and its second lowest point since 1994.
The investor sentiment index is viewed as a contrary indicator, because at market tops and bottoms, people's emotions tend to be lagging--they are responding to what has already occurred. Indeed, as sentiment is hitting a low, the market is showing signs of life, with last week's performance its best in some time. Recent history also lends credence to this thinking. In 1998, the S&P stalled and just after the AAII Index hit its low, the S&P monthly average soared from just above 1,000 in September to just under 1,400 by July 1999. There was similar activity in 1994, though the market sputtered for a longer period before hitting its stride after the sentiment index bottomed out.
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for the economy:
Another theory is that improved stock market conditions could have direct impacts on consumer confidence through the wealth effect. The surge in wealth created by the stock market during the current expansion has been cited as one of the primary drivers of consumer spending growth. However, this correlation is questionable, as the current reversal of fortunes has not led to a substantial reverse wealth effect. Indeed, while household net worth actually declined in the fourth quarter compared to the year before, consumer confidence and spending has held up considerably well. Instead, weakening employment conditions (click here to see) ----> dismal.com and increased energy prices (click here to see)---> dismal.com are more likely the culprits responsible for the spending slowdown. For the most part, despite the broadening of stock ownership, most households still place a small share of their assets in equities. According to the Survey of Consumer Finance, the average household has less than 25% of its assets tied up in stocks.
Of course, investor, consumer and business confidence are all interrelated, and an improvement in one is bound to affect the others through some channel. The degree to which one will affect another in any given situation, however, is variable. While a rebound in stock prices would be welcome, given the ongoing stress facing key high-tech manufacturers and communication services providers, don't count on a market rebound to be a quick fix for the broader economy.
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and the Ugly...
Yes, the politicians, the world 's villages idiots...
prudentbear.com
Leaving aside the question of the rights and wrongs of this particular dispute, what has been even more striking is the conspicuous lack of public international support evinced on behalf of the United States. America appears to be paying a price for its persistent unilateralism. In a recent piece in the Los Angeles Times, Asian scholar Chalmers Johnson wrote that the Japanese government was quick to indicate to the PRC the fact that the spy plane’s flight originated from an airbase in Okinawa in no way would alter Japan’s own relations with China. At the same time, Tokyo was very publicly critical of an unannounced port of call at the Sasebo naval base by a US nuclear submarine, when as a matter of policy, the US is supposed to give the Japanese government 24 hours’ notice for making such ports of call. (The resultant outrage in Japan was dismissed by a Pentagon spokesman as a mere "oversight", which seems exceptionally insensitive, given the Ehime Maru fishing boat incident just 6 weeks earlier during which 9 Japanese civilians were accidentally killed by an American submarine.) Johnson contrasts Japan’s comparatively muted response over the spy plane with the loud fuss made over the unauthorised American nuclear submarine port of call and concludes that, taken in conjunction, the two incidents signalled Tokyo’s intention to send the Chinese a covert message, "namely, that Japan is not in a fighting mood and resents the way it is being drawn into a conflict not of its own making".
And what of the nations of emerging Asia? For more than half a century, America had bought the loyalty of its East Asian satellites, by effectively guaranteeing them free access to the country’s huge domestic market. Forged at the height of the Cold War during which security considerations overrode economics, such a policy helped to create the export juggernaut that did so much to underpin the growth miracle of the Asian "tiger" economies. Unfortunately for the East Asians, this cosy arrangement blew apart during the emerging markets’ crisis of 1998, during which the region found to its surprise that Washington’s free market access guarantee for their manufacturing exports was not to be a permanent feature of the bilateral relationship and instead, that these countries were now viewed as serious threats to America’s own economic well-being. Not content with blasting these countries as rife with "crony capitalists", the US quickly sent the IMF into the region, promising billions of dollars of aid contingent on destroying the very basis of emerging Asia’s economic growth model and replacing it with an "open", supposedly more efficient, neo-liberal Anglo-American configuration.
Reflecting the American triumphalism of this period was a January 1998 commentary by the columnist Charles Krauthammer: "Our success is the success of the American capitalist model, which lies closer to the free market vision of Adam Smith than any other. Much closer, certainly, than Asia’s paternalistic crony capitalism that so seduced critics of the American system during Asia’s now-burst bubble." Amongst the policies effected to ensure this (ultimately unsuccessful) transformation to a supposed "free market vision of Adam Smith", was the imposition of austerity budgets, high interest rates, as well as fire sales of debt-ridden businesses to opportunistic foreign vulture funds. The resultant impoverishment and humiliation of huge populations from South Korea to Indonesia that occurred under this allegedly benign rubric of "globalisation" and "reform" engendered widespread anti-Americanism in the region. In the context of the recent spy plane conflict with China, we might therefore view East Asia’s conspicuous lack of open support for the American position as a sign that Washington is now reaping the consequences of its ill-considered policies and the sheer arrogance that was present during the height of the crisis in 1998. The payback is now evident: America’s policy makers have now apparently undermined the ties that once made this region an instinctive ally of the United States.
At the same time, there has been very little questioning of the cost that is accruing daily to the American economy itself as it seeks to perpetuate its role as "global cop". Indeed, this security function seems to be taken as a given in the otherwise provocative piece quoted above by the Post’s Zakaria. Despite acknowledging the conspicuous lack of support accorded to the American position by its traditional allies, Zacharia goes on to write: "Washington correctly believes that it has a role to play in maintaining stability in East Asia and preventing any one power -- read China -- from dominating." Why is this belief necessarily correct and why has there been so little thought directed to economic and political costs to America of maintaining this role? Speaking about the United States some thirty years ago, international relations scholar Ronald Steel argued, "Unlike Rome, we have not exploited our empire. On the contrary, our empire has exploited us, making enormous drains on our resources and energies." At no time has this paradox been more evident than today, and yet it is not considered to be a respectable topic of conversation amongst America’s mainstream foreign policy elites to question whether this is a sustainable role for a country suffering from a multitude of grave economic problems at home.
Where do we go from here (at least for next week...)
Investors will pore over reports from Applied Micro Circuits, Adaptec, Peoplesoft, Compaq, and eMachines for signs that the semiconductor, software, and PC industries are rebooting. While Microsoft, Intel, and IBM voiced optimism this past week, other companies, including Cisco, Gateway, and Sun, have not been quite as chipper regarding the outlook for technology firms in coming quarters.
Telecom companies have sent predominantly negative signals to investors thus far, with earnings weak and layoffs coming fast and furious. The week ahead should clarify the outlook, with industry giants AT&T, Lucent, Nextel, Qualcomm, Qwest, SBC, Verizon, and Worldcom reporting. Also next week, results from fiber-optics firms Avanex, Corning, JDS Uniphase, and Corvis will hit the wires.
A number of financial, chemical, commodities, media, transportation, and consumer goods companies will round out the chorus of corporate profit announcements during the week. American Express, Anheuser-Busch, BF Goodrich, Black & Decker, Bristol-Myers Squibb, Coca-Cola, DaimlerChrysler, Dupont, Freddie Mac, Kimberly-Clark, Texaco, Union-Pacific, Viacom, and more are due to report first-quarter earnings.
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However, if we've learned anything this past week, it's to expect the unexpected. With the Quebec trade talks under way, the Japanese presidential election set for April 24, the European Central Bank poised to cut euro-zone interest rates, key U.S. economic data rolling in, and earnings season in full swing, you can count on some surprises in the week ahead.
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