Tuesday, June 14, 2011


With news from China showing inflation not as bad as expected and the economy slowing, Asian and European stocks rose overnight.  I look for U.S. stocks to follow suit today.  Although stocks will most likely rise some today, I wouldn't expect this to point towards any kind of return of a bull market.  I fully expect the markets to continue to lag throughout the summer, with small increases here and there depending on economic news from around the world.  

As far as a sustainable recovery, I don't really see that happening until jobs recover.  While there may be a bit of a recovery in the fall, as long as the jobs picture remains bleak, the stock market isn't likely to make any sustainable advances.  Government intervention has proven ineffective at creating jobs, so it will most likely be up to the private sector.  The big corporations will eventually have to see it as an advantage to create more jobs, boosting the economy, by putting some of the massive stockpiles of cash they have right now to work.  If a company can no longer invest extra cash profitably, they traditionally returned the cash to shareholders in the form of dividends or share buy backs.  However, as much as I like dividends, I'd rather see some of the money put to work creating jobs.  More jobs mean more consumers with expendable cash, leading to increased business and profits.  An increase in business profits from a growing economy is the only real way to sustain a long term recovery of the stock market and the absolute best way to reduce massive government debt by resultant increased tax revenues.

Is this likely to happen?  Eventually, I think it might, but for now I think companies will continue to stockpile cash as a protection from poor liquidity in the credit markets.  When money is not available in the form of loans, the companies who have a large cash reserve will fair better than those who depend on loans for day to day business expenses.

No comments: