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November 21, 2009
By Dimitri Kanellopoulos, BuyActive.com
MONTREAL (BuyActive) - These markets, not being based on fundamentals, are eventually bound to turn negative.
Stocks are overvalued and the US economy is likely to fall back into a recession in a few months. Investors can buy pretty much anything today; good strong stocks, poor weak stocks, everything is going up.
This is all caused by low interest rates and the US dollar’s weakness. The S&P 500 touched a 13-month high on breaking above the technically important 1100 level as investors made bullish bets on companies that benefit from a weak dollar.
The markets are hitting a new high every day. Does this indicate an economic rebound? Not so fast! With unemployment at over 10% at the same time, are we forgetting something called "recession"? Investors that are hoping for strong Christmas sales are going to be disappointed.
There's nowhere to hide at this point. Why the banks are rallying makes no sense since there's no root in fundamentals. The banks are only going to need to raise capital again.
It is important to realize that by adding to the debt, even while in a recession, people could lose confidence in the U.S. economy. This way, it could actually lead to a double-dip recession.
The residential real estate market is likely to worsen and remains a much bigger threat than the commercial property market. Housing starts have dropped 10.6 percent to a seasonally adjusted annual rate of 529,000 units. This is the lowest level since April and the percentage drop was the biggest since January.
This latest data will be another blow to the housing market which had started to show some signs of stabilization after a three year slump. The small recovery in the housing market had been due mainly to the popular $8,000 tax credit for first-time buyers.
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Dimitri Kanellopoulos
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