Best of the Week
Most Popular
1.Gold Price Target of USD 2,300 - GoldCore
2.Greece Banking System Collapse Monday as ECB Pulls the Plug, Capital Controls Ahead of GrExit - Nadeem_Walayat
3.Why British Muslims Are Leaving Elysium Paradise for Syrian Hell - Nadeem_Walayat
4.Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - Nadeem_Walayat
5.Extreme Gold/Silver Shorting - Zeal_LLC
6.European Empire Strikes Back Against Greek Debt Fantasy, Counting Down to GREXIT - Nadeem_Walayat
7.Gold And Silver – Three Choices: Sell, Hold, Hold and Add. A Trading Treatise - Michael_Noonan
8.Gold and Silver Price Headed for Breakdown - Jordan_Roy_Byrne
9.Greece Crisis OXI - Raul_I_Meijer
10.Flatline Investing and Dead End Debt Schemes - Doug_Wakefield
Last 5 days
Greece Crisis Shows Importance of Gold as Europeans Buy Coins and Bars - 30th June 15
Stock Investors Express Route to Profits in the Healthcare Sector - 30th June 15
Beyond the Greek Impasse - 30th June 15
Gold GDXJ : Impulse Move Pending - 30th June 15
Fed Interest Rate Increase Could Be Best Thing to Happen to Gold - 30th June 15
Marc Faber - Greece is Basically Bankrupt - 30th June 15
Greece - Shoot the Dog and Sell the Farm - 29th June 15
Grexit?, BIS Warning, Chinese Market Crash & Systemic Risk Shake the Global Economy - 29th June 15
The New "Sharing Economy" May Not Be the Profit Bonanza Everyone's Expecting - 29th June 15
Gold and Silver Greece and Short Positions - 29th June 15
Volatility and Sleep-Walking Markets - 29th June 15
Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - 29th June 15
Stock Market More Decline Ahead? - 29th June 15
China Stock Market Crackup - The Final Trap Looms... - 29th June 15
Greece Banking System Collapse Monday as ECB Pulls the Plug, Capital Controls Ahead of GrExit - 28th June 15
Investor Stock Play for Two Growing Missile Threats - 28th June 15
Stock Market Uptrend/downtrend Inflection Point - 27th June 15
Greece Crisis OXI - 27th June 15
Gold And Silver – Three Choices: Sell, Hold, Hold and Add. A Trading Treatise - 27th June 15
It’s Time to Change the Way You Look at Disney Forever - 27th June 15
Flatline Investing and Dead End Debt Schemes - 27th June 15
Stock Market Investors Avoid the "Herd" Like the Plague - 26th June 15
Extreme Gold/Silver Shorting - 26th June 15
USD Daily, Weekly, Monthly & Conclusions - 26th June 15
Gold Price Target of USD 2,300 - 26th June 15
Gold and Silver - Another Successful Option Expiration For the Insiders - 26th June 15
Why Buffett Bet A Billion On Solar Energy - 26th June 15
Fed Taper Talk, And The $10 Bill - 25th June 15
When a Bond Is Not a Bond - 25th June 15
Nature Rebounds - Trends in America Portend a Global Restoration of Nature - 25th June 15
Stocks That Profit... Even When You're Dead Wrong - 25th June 15
When Will US Debt Hit the Wall? - 25th June 15
Ron Paul Warns “They Can’t Print Money Forever” - 25th June 15
In Gold We Trust 2015: Gold Remains In A Secular Bull Market - 25th June 15
European Empire Strikes Back Against Greek Debt Fantasy, Counting Down to GREXIT - 25th June 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

China Stocks - Where are they going?

A Stocks Bull Market or Just Bull?

Stock-Markets / Stock Markets 2010 Mar 24, 2010 - 07:05 PM GMT

By: John_Browne

Stock-Markets

Best Financial Markets Analysis ArticleLast week, the Dow closed at 10,741, up some 64 percent since its 2009 lows, [03/19/10, Yahoo! Finance] when most markets had priced in the likelihood of financial Armageddon. As the markets have rebounded from the brink of disaster, many Wall Street cheerleaders have proclaimed the dawning of a major new bull market.


If we measure market cycles biannually, and if bull markets need not eclipse peaks achieved in previous cycles, then this forecast is spot on. Of course, most investors are not saving for next week, but for homes, college tuitions, and retirements. For these longer term investors, the euphoria of the current rally may soon turn to despair when the market faces the unsavory fundamentals of a second financial crisis.

We have long raised the point that, in general, the political, economic, and financial fundamentals of our new mega-government era do not support a sunny long-term outlook for U.S. stocks. Today, the S&P 500 trades at 21.6 times current earnings, which is 32% higher than the average over the last 30 years. [03/24/10, multipl.com] With so much economic uncertainty on the horizon, I'm not sure how you make the case that the market is still undervalued. The nature of the recent stock price move appears to be that of a bear-market rally, not a bull-market resurgence.

Politically, this past Sunday's passage of mandatory health insurance for all U.S. citizens, popularly dubbed 'Obamacare,' causes the greatest worry. None of the fundamental problems confronting the American healthcare sector were adequately addressed by this reform. Instead, government controls were increased and entrenched, and expensive new entitlements were offered to the voting public. Far from cutting the deficit, the costs of the new plan are likely to deepen deficits indefinitely. The Wall Street Journal reported Monday that the cost would be $940 billion over the next decade. The President, in speaking of the new health measure, declared that "[t]his is only a first step." As in most socialist regimes, grand promises of milk and honey first win the popular vote, leading to bureaucracies that diminish, if not eradicate, individual freedom of choice.

The American free-enterprise model has been used by myriad nations as an ideal for economic growth and prosperity. As a reward, the United States served for many years as the darling of international investors. On the other hand, socialism has failed everywhere it has been tried. An America rapidly devolving toward socialism will unquestionably act as a disincentive to international investors. Increasingly, foreign funds will be withdrawn from our shores and taken to parts of the world that embrace capitalism.

Economically, the United States and European Union, and many of their constituent states, are among the world's most flagrant debtors. These debts are not being used to invest in profitable endeavors, but rather in welfare hand-outs and make-work projects. Worse still, these governments are adding new debt with such speed and volume that Moody's has begun to issue warnings on their previously untouchable credit ratings. Besides introducing tremendous regime uncertainty into the markets, spendthrift fiscal policy has the added harm of crowding out corporate and private borrowers.

The private sector can ill-afford this deprivation. While corporate earnings have risen substantially since the country began careening toward recession, this has largely been achieved by layoffs, improvements in inventory controls, and consolidated product lines. With top-line sales decreasing, the ability to produce rising profits by slashing costs cannot continue for long. We're looking for another wave of corporate bankruptcies as the anticipated V-shaped recovery fails to materialize.

The technical situation of the U.S. stock market looks similarly fragile. The 64 percent rally from the lows of early 2009 appears overbought. The fact that it has occurred on very light volume makes today's prices even more tenuous. That the rally may continue of its own momentum through the spring does not alter the poor fundamentals.

While stocks continued to move upward last week, the market is sensitive to Greece, Portugal and Europe's debt problems, as well as political and economic problems at home. There is some job recovery, but far too little. Corporations and governments are depending on a miraculous economic boom to remain solvent. When the Fed finally allows interest rates to reach more appropriate levels, look for the glass floor to begin cracking. It is comforting to think bullish, but, for now, the aura of recovery is just so much bull.

As an aside, all investors should keep in mind 'opportunity costs' as a matter of regular portfolio review. Although domestic stocks appear to have put in a rock solid performance over the past 12 months, one must weigh the outcome against asset classes around the world. Many may assume that the gains are unique to America when, in fact, other markets may have had largely better performance. Investors should bear in mind this opportunity cost to ensure they do not remain exclusively in the U.S. at the cost of perhaps missing investments found in China, India, Canada, Australia, and other attractive markets.

For in-depth analysis of this and other investment topics, subscribe to The Global Investor, Peter Schiff's free online newsletter. Click here for more information.

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History