CapitalistMarks

Dow up 500+ points in one week! Don’t get too excited.

Posted on 17. Jul, 2009 by scott in markets

The Dow, Nasdaq and S&P had a great week.  In five days they made up the losses of the previous five weeks.  Sounds great and looks great on paper too.  But don’t get overconfident.

Much of this is smoke and mirrrors.  At least until we (the politicians) generate a bunch more confidence and get a handle on unemployment.

So, what gives?

The market this week was driven by three main stocks.  Goldman Sachs, Intel and IBM.  And you know what all of these have in common, and why you shouldn’t be raiding your mattress for $$ to throw at the market?  They have huge international components to their earnings.

If you take the time you can read all the press releases and you will soon discover that the gains are not a result of a change in perspective by the ‘all important’ American consumer.  These good earnings are a result of positive GDP (Gross Domestic Product — the value of all goods and services) in three of the so called BRIC countries.  Brasil, India and of course China.

These countries have a combined GDP of about $4.5 trillion.  The United States has a GDP of about $13 trillion.  But the U.S. is going to lose ground this year (negative GDP growth) and the BIC (BRIC less Russia) are going to have an average GDP growth of around 6-8%.  Their consumers are spending.  Their governments are NOT running up huge deficits (China even has a huge net SURPLUS — several $trillion).  Their governments are not trying to do too much with too little.

These countries have a population of around 2.6 billion people (the U.S. has 305 million) or about twelve times ours.  So they don’t ALL have to be buying computers, TVs and Toyotas.  But a bunch of them are.  Buying computers with Intel chips and IBM software or consulting.  Plus, because they are growing, the innovators in these countries are growing or starting companies and where do they get the money and financial savvy to do that?   Goldman Sachs and the boys.

DELL, the once dominant American PC company reported disappointing earnings and projections.  Starting to see the picture?

The bottom line:  The U.S. is not even close to being out of this recession.  Obama and his team of ghurus and knuckleheads have got to get a handle on unemployment and rising taxes.  Don’t expect this runup to continue.  If you have some good profits then consider taking some of them off the table in the next few weeks . . . you just might be able to get back in cheaper if and when the next wave of bad news hits (for the traders our there, and not the long-term investors . . . wait are there any of those left?).

By the way, historically the month of October seems to be when markets can take some awful hits–especially if things aren’t going well– and they aren’t and probably won’t be by then.

Too bad we are pumping out bad news all the time (i.e. full speed ahead with universal health care and damn the costs) and the BIC’s are pumping out real infrastructure projects, sensible energy policy (well at least Brasil), and actual economic growth.

Stay tuned.

This ain’t over yet baby!

thanks to epak at Flickr for the photo

Tags: Brasil, BRICs, china, Dow, economic growth, energy, Goldman Sachs, IBM, India, Intel, international markets, NASDAQ, obama, S&P, stock market surge this week, US marakets