Mohamed El-Erian is one of the smartest investment experts in the business. In this video he says that the recent stock rally is essentially “a sugar high” based on unreasonable expectations. He makes a good point in that most of the positive earnings results this quarter were due to cost cutting and not solid revenues. Also he states that until we have sustained demand and confidence from consumers and businesses we will not see a meaningful recovery.
I’m pretty much in agreement with him. I feel like we’ve seen the worst of the economy, but unlike in past recessions we will not have a significant recovery. Unemployment and wages are still a significant problem and many consumers don’t have access to the credit they once had. Additionally, mortgage resets for option ARMs will be significantly higher in 2010 compared to 2009. This will put additional stress on the housing market.
What do you think about the current stock rally and our changes for economic recovery?
I agree, the rally MAYBE has 5% more upside from here, but i’ve been selling all week long. Market up 8% YTD, lock in another 2% risk free gain for the rest of the year for 10%, not bad for the most part.
I’m afraid of super unemployment derailing spending as I write in one of my posts.
Rgds,
Rich By 30 Retire By 40
I agree RB, we’re not out of the woods yet. Hopefully, we won’t go back down that far, but I don’t envision us going too much higher at this point in time.