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Portfolio strategy update Proceed with caution David Gottstein
Editor’s note: David Gottstein is with Dynamic Research Group in Anchorage. Perhaps it is the cynic in me, but I am not quick to believe the stock market prognosticators who are forecasting a strong recovery in the economy, corporate earnings, and in the stock market itself. I believe all will be tepid at best.
The biggest void in all the economic statistics that are being quoted as justification for this upbeat assessment is the lack of job growth.
It isn’t there.
If it were not for the fiscal stimulus resulting from government spending, we would probably be seeing even further softness in the economy.
It is going to take job growth, personal income growth, and capital spending by businesses attempting to respond to increasing demand, that will be the underpinnings of any sustained recovery. It isn’t as many supply-siders will argue, about building factories, and they will buy.
It is demand that creates the need for supply, not the other way around.
Expect modest growth That all being said, I believe the economy will grow, modestly, but only if we are not confronted by some major destructive event such as a terrorist attack, or if things don’t go well on the foreign front. Particularly in Iraq and North Korea.
To date, corporate earnings increases have been a result of cost cutting, not demand growth. And that can last only so long. Even so, corporate America has made significant strides in rationalizing the efficiencies of their operations in the last two years, and has lowered break-even points.
For this reason, along with federal spending and the general propensity of America to expand and grow, I believe we are likely to avoid a double-dip recession. Although we will be vulnerable to one, largely due to external factors. Including the continued drag on job growth resulting from the Chinese currency being artificially pegged low against the U.S. dollar by the Chinese government. This in order to steal jobs from America.
World about to change We are not only cautious about the strength of the economy itself, but of course with respect to the various potential outcomes of the likely upcoming engagement in Iraq.
The world is about to change, and we don’t yet know how.
Until we have more visibility, uncertainty and caution are the order of the day.
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