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Written by José D. Roncal
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Sunday, 15 November 2009 23:54 |
The financial headlines this week were all thumbs up: DOW hits 13-month high! Up 136.49 points to 10406.96! A robust sign of economic growth! Yes, that all sounds tempting, but what does it really mean? Is it a signal to jump back into the market with both feet? Those prices must be signaling a "now or never opportunity," right?
Take a deep breath. Lest we forget, this new high is still nearly 4,000 points lower than the record closing high of 14,164.53 on October 9, 2007. The sting of those losses has left a lot of us playing catch up and applying balms of hope to our wounds.
Is this current bull market a true sign of recovery and opportunity, or simply a classic sucker rally in the middle of a bear market? We can't answer that, but we do know that this uptick creates dangerous and fertile ground for victims of herd mentality. If you need a refresher course on just how susceptible we are to getting caught up in such madness, you'll find a whole chapter filled with examples in our book The Big Gamble: Are You Investing or Speculating?
Think you're savvy enough to avoid such folly? Well ask yourself if you've ever succumbed to advertising hype or subtle marketing ploys that lured you into overpaying for a product . . . all because you wanted to believe the claims were true. Or have you ever bought securities that you subconsciously felt might be were overvalued, but the price kept moving up and the herd instinct was too much to resist?
Taking a step back from the hype, we'd like to remind you that this recent Wall Street market move shouldn't surprise anyone—we're still in a quarter that's full of surprises. This is when many companies release their numbers that tout positive earnings. But look closer. Are those numbers based on actual revenues, or are they the result of recession induced major cost cutting? Chances are you didn't see any stellar numbers listed in the revenue column, but cost cutting is the main factor in staying afloat for many companies.
If you wait one more quarter, you might get a more accurate picture of how these companies are faring. Meanwhile jobs are tanking, consumers are not spending, and taxes and health care costs—in spite of so-called reform—are going to rise. The economy is still weak and if companies aren't able to book revenues, how will that result in hiring, trickle-down spending, and a sustained bull market?
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Written by José D. Roncal
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Saturday, 31 October 2009 03:24 |
It's Halloween—a celebration marked with children's Jack O Lanterns, witches' bubbling brews, vampires, and make-believe visions of doom. But this Halloween we're having visions about a different variety of bubbles and doom—the asset bubbles recently predicted by Dr. Doom, aka New York University professor Nouriel Roubini.
If you need a refresher course on the concept of financial bubbles, we urge you to pick up a copy of our book, The Big Gamble. We've laid out the whole grisly horror story of bubbles from the Tulip Mania of the 1600s, through the dotcom meltdown, right up to and including the housing bubble that caused the economic calamity that we're still struggling through. But is there another one coming? Roubini seems to think so.
Roubini got his nickname, Dr. Doom, because of his famously grim, but accurate, prediction of the financial maelstrom. He was the first to recognize that questionable lending practices were going to lead to the housing bubble. Unfortunately, he was a bit ahead of everyone else.
He sounded the alarm back when most people were still caught up in the euphoria of a rising stock market and real estate values that seemed to have no ceiling, and back when credit cards were tossed around like play money. In other words, nobody wanted to heed predictions of doom and gloom when things seemed so rosy. But . . . reality bites!
Now, after the shock of a long and painful bite of reality, the news is that the economy has finally experienced the first quarterly uptick in over a year. And with it comes murmurs that the recession is officially over. But history is, by nature, cyclical—we've been down this road before. Does that mean it's time to start bracing for the next financial cataclysm? Are we unwittingly planting the seeds of the next economic crisis?
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