Friday, April 10, 2009

Is The Worst Over ?

Back to my title above ... is the worst over ? It's the trillion dollar question. After the G20 Summit is over, it seems that everyone is happy. The stock market is going up and gold prices is going down. So .. is the worst over ? or we are just in the eye of the storm, where it is calm.

Signs Of Recovery ?

It seems that the global stock market is in it's uptrend again, people start to buy shares battered in the previous months due to the uncertainty of the market. We got some positive numbers on the American companies, dying banks such as Citibank and Wells Fargo started to post some earnings. So is the global economy on the path of recovery ? I still have some doubt. Why ?

1. Bank Positive Reports

Citibank, Bank Of America and Wells Fargo is reporting that the banks are doing better in this quarter. They are reporting positive income. Why ? That is the question which is need to be asked. Is it because the bulk of the toxic assets burden has been shifted to the public ? Eventhough they are reporting positive income, are the banks still solvent ? How can banks positive income is a sign that the economy is improving ? If the value of the shares in the stock market is increasing, does it mean that the company is profitting or doing well in its operation ?

2. The Effect of Economic Stimulus Package

The stimulus package basically is the government spending to pick up where the market is slacking. By creating demand in the market for goods, it is dispersing funds to the people and when people get money and a sense of well being, people will start to spend again. It is some sort of economic grease. However, I fear the sustainability of the idea on a long term basis. I think it might delay pr ease the full effect of the recession.

3. Printing Money

The US, British, Swiss and Japanese Government is printing money, which is inflating the currency and decreases its value. When inflation really hits, it going to be huge. It's going to drag the price of everything higher.

In my opinion, the rally we are seeing now is just a bear market rally. What the government has achieved is just delaying the process. Good news might brighten up the mood for investors longing to see the bottom in search of entry position. However, with weak economic fundamentals, it does not look like the economy might be recovering very soon. The market lives on demand for goods, without any demand, there is no market. However, the market could not live on fake demands powered by cheap debt. Debt is not good for the people, more debt is even worse. When money is cheap, it does not worth a lot isn't it