i have been getting feedback from my relatives in US and some of my friends who just came back .... i heard that people are still shopping , business is still going strong and the US is far from recession.
Did they check the health of US retailers? I would ask your friends to check month over month retail sales in the US. Dec being the free spending month saw less than a percentage increase from Nov. Jan was negative compared to Dec. The workforce participation rate in the US has dropped to 1988 levels after peaking in 2000. In the US, everyone paints a good picture. The guy driving a SUV and eating out every night probably has debt to his eyeballs but that's their life style. Check how credit card delinquencies have increased in the last 3 months.
Yes we had citi , merill lynch , Morgan stanley etc..throwing up losses quarter after quarter trading CDOs but these are the same institutions that showed record profits year after year.
Don't you think there will be layoffs here? Management isn't going to sit around and write off losses without making cuts. Last week Goldman reported 5% cut, MS made another 1000 and the list goes on. The major cuts are still around the corner. Unemployment is a coincident indicator to recession. Most of the North East in the last 5 years has seen a lot of jobs being created in the financial sector because of the easy credit environment that prevailed. The same is true with California. The only states that seem to be doing good are oil producing states like Texas.
The point is CDO market has collapsed , home owners and in turn institutions that funded them are in trouble but US being the financial powerhouse of the world will come out of this mess and recession is too strong a word to describe this temporary mess..
In the US on an average during the past 4 years, about $800B+ have been withdrawn from home equity every year to fund spending. Home owners go to banks, take out whatever value their homes have appreciated by and spend the money! Buy cars made in Europe and Japan. Since September, with falling home prices and tightening credit these guys can't take money out like they did before.
No money, no spending, no Japanese/European cars. The 800B is according to some low end of the estimate because of how US agencies record home prices and thus equity withdrawal.
The second point is , even if US is going into a recession , the world will continue to park its money in economies that have a strong growth trajectory like india and china..... Just have a look at the crash that happened this week and the recovery , it is easily visible that sensex and hangseng recovered their losses faster than other indices(infact for morning cues one can safely have a glimpse at hangseng)...
Lastly, structural growth stories have always lasted for decades ... for U.S and europe between 1900-2000( yes in between we had phases of de-growth which didnt last too long) and japan between 1950-1990 . The point is india and china are in the begining stages of this structural growth and this will continue for many decades to come. Iam a firm believer that bull markets all over the world has had parallels and our parallel bull market is hangseng. So the next time a crash happens look at the long term support zones for individual stocks and go long without thinking twice and more importantly dont listen to what CNBC has to say about the crash
I'm with you on the long term prospects of emerging markets but the short term [1 year or so] is going to be terrible. You cannot have sustainable growth without exports. What happens when our prime exporters get hit with a recession? US is India's leading export partner. I hate CNBC
I would like to post links to back my claim but the domain names get 'x'ed out after posting
p.s. If you invested in the DOW in 1929, you wouldn't have returned to profit untill 1955.
