Stop Think About It
As said in an past article, from time to time the best movement is standing still. As true as that is, after the three month economic rally we’ve seen, it’s time to stop and refocus. In a discussion in the remarks of a previous post regarding the new Northrop Grumman agreement, this author made the subsequent comment, to the arrangement of both parties involved in the conversation, “However, you mentioned we had the biggest rally in history. That is true, and it concerns me slightly. Our recession hit a false bottom. I’m afraid that people will get too excited and we will hit a false rally. I’d like to see a slow, steady rally as we rebuild a firm foundation under it, instead of just setting up another rollercoaster ride.” That is exactly what you are currently seeing.
We are stepping to the left at the moment, and then taking a step or two back to take a look at what we are at present doing. That is healthful and, albeit odd to admit, encouraging. Investors have been courageous but intelligent and it paid off for three months in a good rally. Investors are at this time backing off with the gossip that the signs of financial growth have hindered and will need more concrete evidence of rally before building further. With the dread of rising interest rates, inflation, the slipping value of the US dollar and increasing commodity costs, it is understandable and strong.
The slipping dollar and inflation are wordlessly strong concerns. Uncertainties over government arrears (partially created by the total TARP mess) that has began to lead to a little further printing is beginning to drop the worth of the dollar. Merge that with fears of inflation or a increase in interest rates by reason of impending labors by the Federal Reserve to trump inflation and you have a very loose economic organization on which to run a stabilizing economy. Be confident, however, for the reason that investors are doing the correct thing and the financial slowdown after a heavy rally is a big, healthy thing. This gives the economy to even out and build under the new rally before starting another one and gives the government time to begin giving the dollar economic CPR and allows the Fed to control interest rates and inflation. Everyone wins.
“A askew move in the economy is in fact a corrective move. You dispose of the overbought state when you move sideways,” said Keith Springer, leader of Sacramento-based Capital Financial Advisory Services. Analysts and experts warn that the rally was a bit too much for the economy to deal with and that a small pullback is in order to recap and harden before moving at all further. The S&P 500 index ascended 40% ever since March, something that usually takes years to accomplish. That is gigantic and requires a fit break to weigh up the situation and look for constructive news prior to pressing on.
The major indexes moved less than 1% last week, creating a nice solid halt. “I’m inclined to take the market action the last two weeks as reasonably positive,” said Uri Landesman, from ING Investment Management global growth strategies.
