Investors Profiting From Economic SchizophreniaStock-Markets / Financial Markets 2010 Jul 12, 2010 - 08:17 AM GMT
If last week’s massive price swings in the U.S. stock market proved anything, it’s that the world’s investors are massively confused.
They have every right to be. After all, even the world’s most respected authorities — the experts with access to every scrap of data an economist could ever want — are talking out of both sides of their mouths.
Take the International Monetary Fund (IMF) for instance. Last week, this august body released a report saying the global economy would grow in 2010 — but only if current conditions DON’T continue to persist!
Their exact words:
“Recent turbulence in financial markets — reflecting a drop in confidence about fiscal sustainability, policy responses, and future growth prospects — has cast a cloud over the outlook.”
The IMF goes on to cite the very same dangers for the United States we’ve been warning you about: High levels of public debt, unemployment, and a continuing credit crunch.
And IMF economists aren’t the only analysts giving mixed signals.
Last week, the market rallied sharply primarily because some Wall Street analysts said they expect this week’s retail sales report to show that consumers spent 3.2 percent more in June.
Sounds good, right? But at the same time …
- Goldman Sachs and Citigroup to actually CUT their forecast for several retailers last Tuesday, including big names like Home Depot, Wal-Mart, Target and Macy’s. The reasons: High unemployment, weakening consumer confidence and record-low demand for new homes.
- Plus, in another blow to the outlook for retail sales — and by extension, the entire U.S. economy — MasterCard Advisors’ SpendingPulse just reported that luxury spending actually dropped 3.9 percent last month!
- And remember: Well-off households account for almost 40 percent of overall consumer spending and while consumer spending accounts for 70 percent of all U.S. economic activity. Or as a top analyst for the retail industry put it, “It isn’t a good omen for the consumer recovery, which cannot exist without the luxury spender.”
My view: The economic recovery is toast, and any additional or unexpected rallies in the stock market are a gift for investors — a final opportunity to sell your vulnerable stocks and shift to safer havens.
Precisely when and how far stocks fall remains, of course, uncertain. But one thing is virtually unavoidable:
The breath-taking swings in stocks, bonds, gold, and other markers are likely to grow even more extreme in the months ahead!
The next few months will bring a final showdown between the biggest economies of the world and the most powerful governments.
Will the governments prevent a double-dip recession and sovereign debt attacks at the same time? Or will they be overwhelmed by market forces that they cannot control?
I feel it ultimately MUST be the latter. I see possible delays and side trips in between, but I see no way that governments can win the final battles against sinking economies and stock markets.
The good news for investors is that these massive battles — between governments and natural market forces — bring great volatility … and the volatility, in turn can be harvested for equally great profit opportunities — all with unique investments that help you limit your risk.
Good luck and God bless!
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