Wednesday, May 6, 2009

Beginning of the End ?

When I originally started blogging last fall, it was to present people with the "entire story" as opposed to the portions that mainstream media love to tell you. Words like crisis, disaster, depression and doomed seemed to make it into the vernacular of average Canadians. One of the benefits of the economic downturn we experienced in 2008 was the fact that John Q Public began paying more attention to their investments. However, the recent run up in global stock markets has not received the same media attention. Shockingly, many people are unaware that their investments have increased at all. Here's hoping that the message gets through and that people will feel more comfortable saving for their future and less prone to "panicking".

Back in March, Ben Bernanke pronounced the end of the recession was coming by the end of this year with the recovery beginning next year. It was at this time that the theory of "green shoots" was advanced. These green shoots referred to small areas of the economy that were moving higher without regard to general market conditions. A good Canadian example is RIM (Research in Motion). They have been able to show significant growth and productivity regardless of market conditions. Hopefully this trend spreads to other areas of the market.

So what are the actual numbers? Since March 8th, the TSX is up over 30% and is in fact up over 10% year to date. US markets have experienced similar growth. Does that mean the bad stuff is done with? Not likely, especially within certain sectors of the US economy. US regulators did "stress tests" on the 19 largest US banks and it was determined that four (Bank of America, Wells Fargo, Citigroup and GMAC) need another $60B to offset possible losses in the future.

In April, there was a bear attack in Toronto. A what? Nouriel Roubin at left (Professor of Economics, New York University's Stern School of Business) and Eric Sprott, chairman and CEO, Sprott Asset Management are two well known believers that the markets are still in for trouble. In a interview in early April, they explained that Canada is in better shape financially than other economies (specifically the US), but the impact of the US economy affects all global economies. They feel that there are still problems, and that it may take until later in 2010 for the economies to recover. They believe the recent run up in the markets is a bear market rally. Whether that is true will only be known when we look backwards in 1-2 years. They also point out that the inability of global governments to raise tax levels will lead to other weaknesses in the economy.

Last fall, I pronounced a bottom to the market in late November. Markets climbed for three months and then bottomed out in early March. Since then - ZOOM. Is this the beginning of the end of the declines or a bear market rally? The interesting thing will be watching the reaction of people to their semi-annual investment statements in early July.

Stay Well and Pay It Forward.

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