The market continues its remarkable recovery from March lows. The short-term outlook from many is that it could continue—Barry Ritholtz explains why in this post on his site. The long-term outlook for the markets and the economy is a lot less clear, but certainly colored by the gloomy forecasts of some well-known players.
The stance of David Rosenberg, for one, the Gluskin Sheff economist who has said repeatedly for months that stocks are overvalued, can be explained in this one quote from his daily missive, Breakfast with Dave: “Our major strategy remains one of steadfastly focusing on risk-adjusted returns, respecting capital preservation and the need for income in the portfolio… portfolios have to be protected against the prospect of a much more pronounced depreciation of the U.S. dollar.”
Rosenberg says the U.S. clearly wants to devalue its currency and nothing will stop it from doing so. He recommends reading this story from the weekend FT for more on this topic. And he offers this side bit of advice: “Buy Gold.” And if you still believe Treasure Secretary Tim Geithner when he says the U.S. wants a “strong dollar,” read this story from the Wall Street Journal (subscription required).
Whitney Tilson, the founder of hedge fund T2 Partners and author of More Mortgage Meltdown, has been telling anyone who will listen for months that housing is still a depressed sector and any improvements we’re seeing are fleeting. He calls the 4 percent improvement in prices (according to Case Schiller’s index) since April “the mother of all head fakes.” The market is being propped up by the first time home buyer tax credit, falling prices and seasonality, among other things, he says. Here he is in an interview with Henry Blodgett (yes, that Henry Blodgett, of Merrill “fame”) on Tech Ticker reiterating this point.
And just in case this market rally has your spirits a little too far into positive territory, John Mauldin’s Outside the Box newsletter for this week is the perfect way to bring you down a notch. (Mauldin will be appearing on Registered Rep. Editor-in-Chief’s Coffee Break webinar on Thursday, 15 October; to sign up to listen in and ask questions, hit the Coffee Break button on the RR website). As Mauldin often writes, grab a stiff drink and have a seat before reading. This week, Mauldin comes via Hoisington Investment Management, which offers its thoughts on the third quarter and the outlook for the markets and the economy going forward. Here’s a snippet: “Our present situation appears to mirror the exact sequence of events that occurred in previous depressions. This suggests that our current ‘great recession’ may morph into a more serious and elongated downward business cycle.”
(Incidentally, Barry Ritholtz will also be a guest on Registered Rep.’s Coffee Break, an interactive webinar. Ritholtz is scheduled for November 12th.)
Moving to the other side of the world, many people have been voicing concern over China’s economic stability in recent months. Morgan Stanley analyst Andy Xie has been regularly explaining in detail why China is a bubble waiting to burst. In this column Xie makes the case that China could be paving the way for another crisis like the one that rocked Asian in 1997: “Property prices in Southeast Asia became higher than those in the US, but ‘experts’ and government officials had stories to explain it, even though their per capita income was one-tenth that of the US. Their banks also commanded huge market capitalizations, as financial markets extended their growth ad infinitum. The same thing is happening in China today.
“When something seems too good to be true, it is. World trade — the engine of global growth — has collapsed. Employment is still contracting throughout the world. There are no realistic scenarios for the global economy to regain high and sustainable growth.
“China is an export-driven economy. Bank lending can support the economy for a short time, however, stocks are as expensive as during the heydays of the last bubble. Like all previous bubbles, this one, too, will burst.”
For a less dire view, Jim Rogers says China—and Asia especially—are still looking better than the U.S. long-term.
Finally, on a lighter note, the New York Post has some humorous coverage of “The Ponze,” Bernie Madoff, here in his first prison scuffle with another elderly inmate, apparently over stocks.