| Since early Spring, the US stock markets have been | | | | homebuyers for a profit in the near future. They have |
| on a tear. Investors have been treated to over 60% in | | | | been outbidding first time homebuyers who are looking |
| gains. However, these gains have assumed that 5 key | | | | for deals and have been creating a buying frenzy in |
| areas in the economy will continue to improve. | | | | some markets. |
| 1) The 24 news cycle needs to find something else to | | | | 4) Credit Cards. A large amount of consumers have |
| talk about. This was a major concern to me and other | | | | accumulated large amounts of credit card debt over |
| market watchers. Just as after 9/11, people became | | | | the past few years. This too will need to be absorbed |
| focused on the 24 hour cycle of news. It was like | | | | into the system. Consumers have limited spending to |
| watching a car accident -people could not stop | | | | pay down their credit cards. At some point consumers |
| watching. The US is a consumer based economy. This | | | | will feel comfortable with their debt load and will |
| means the main driving force for economic growth is | | | | increase spending. |
| consumer spending. The 24 hour news cycle has | | | | However, recently credit card companies have begun |
| brought an increasing competition for ratings. The more | | | | to increase interest rates, lower credit lines and |
| dramatic and "scary" the story is, the higher the ratings. | | | | shorten the grace periods. This may cause consumers |
| So, the media starting to focus on the "sky is falling" | | | | to pay off all their debt before increasing spending. |
| theory and scared the consumer into thinking this crisis | | | | Once again, as we are a consumer driven economy, |
| would be much worse than the Great Depression. | | | | any reason for people not to spend will limit any type |
| Today, viewers seems to have gotten tired of | | | | recovery. |
| watching stories about how bad the economy is and | | | | 5) Auto Sales. Lastly, we will need to see auto sales |
| instead have gone back out to dinner and the mall. This | | | | begin to rebound. At the height of the housing market |
| has lead to corporate earnings reports from | | | | boom, it seemed everyone was buying a new car. |
| companies that are not as bad as everyone | | | | Now, cars are sitting on loading docks because |
| expected. The focus on the 10 o'clock news now | | | | dealerships don't have any space on the lots. |
| seems to be on President Obama's declining approval | | | | Car companies have been able to slowly sell their |
| rating how dangerous your child's fall sports may be. | | | | inventory and may see an increase in the near future. |
| Back to business as usual. | | | | GM's bankruptcy has allowed them to restructure their |
| 2) People Need to Stop Losing Jobs. This is a very | | | | debt and therefore lower their cost per car. This will |
| real threat to any growth in a consumer driven | | | | allow GM to offer better deals and financing incentives. |
| economy. As people continue to see their co-workers | | | | A stronger US dollar (assuming it get stronger as the |
| laid off, the "I may be next" thinking spreads. This can | | | | stock market rises) allows foreign car companies to |
| not only stop consumers from spending, but it can hurt | | | | make more money on US sales which allows |
| a company's productivity. Why work hard if you may | | | | increased competition among car companies. The |
| lose your job next week? | | | | increased competition will create greater bargains for |
| Employers need to stop cutting jobs from an | | | | US car buyers, hopefully leading to more new car |
| accounting viewpoint and start looking at the talent in | | | | purchases. |
| the office- and only getting rid of the non-performers. | | | | The "cash for clunkers" program has given auto |
| As many companies have taken the summer to | | | | manufactures some much needed relief. Unfortunately, |
| regroup and refocus, we may be starting to see an | | | | this may be short term. The majority of people taking |
| end of this cycle. | | | | advantage of this program were individuals who were |
| 3) The Housing Market. We are seeing record | | | | already planning to purchase a car within the next |
| foreclosures and in some areas a 50% drop of | | | | year. The "cash for clunkers" program merely moved |
| housing values. This will probably be the last area to | | | | up those purchases. |
| improve in the economy. Many strategists believe that | | | | While there are definitely some good signs beginning to |
| when the house values begin to rise, then the start of | | | | emerge from the economy, there is still some work to |
| a new bull market will occur. While the housing market | | | | do. Both the housing market and the auto industry |
| is showing signs of stabilization, there is now a over | | | | need more time to recover and this may cause erratic |
| abundance of inventory that needs to be absorbed | | | | behavior in consumers. This fits into our secular bear |
| into the system before housing prices can start to | | | | market theory - the erratic behavior of consumers |
| increase again. | | | | over the next few years will have an erratic effect on |
| One good sign is now is a great time to buy real | | | | corporate earnings, and therefore an erratic behavior in |
| estate. Private equity funds have been buying | | | | the US markets. And just as in past bear market |
| foreclosed properties in large quantities. These funds | | | | cycles, there will continue to be numerous opportunities |
| are betting that they can sell these properties back to | | | | for the nimble investor. |