Interest rates remain unchanged as expected by the markets. Initially, with a surge of 1.8% in producer prices last month, inflation was a thing of concern. However, consumer prices rose a modest 0.4% with core prices remaining flat. Since the rise in prices has not transitioned to the consumer level yet, inflation appears to still be in check.
The Fed says they are keeping rates low to help the unemployment factor. With inflation currently in check for the consumer, the primary responsibility is to bring consumers back into play. Jobs and consumer spending are both still down. Jobs are a crucial element for an economic recovery. Until consumers can bring back steady income and until banks begin to loan again, we can expect a slow recovery and an extension of low rates.
Economists expect rates to remain depressed until August 2010 at the earliest. Most expect rates to remain low until around October. Until then, the economy will be experiencing a slow recovery. The economy cannot grow until the overwhelming majority of GDP switches back to consumer spending. The government has no more money to spend. We just have to wait on jobs and lending to come back around. With slow recoveries, it is important to have a diversified portfolio. You want to position yourself with small and mid cap stocks to make cash money on the rebound. It is also important to diversify with some large cap value stocks to hedge against any correction in the markets that many, including myself, think is inevitable during the short term.
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You say the primary responsibility is to bring consumers back into play, and that jobs and consumer spending will help strengthen the economy. Won't holiday spending get the economy going again then? Americans spend 450 billion dollars every Christmas, that should be pretty good correct? Also, I thought President Obama signed something long ago that was suppose to produce lots of jobs for people...has that happened? Also what is the majority of GDP doing now if its not with consumer spending? If you had to pick just one either small and mid cap stocks or large cap value stocks what would you pick?
ReplyDeleteNo, holiday spending is not going to get consumer spending back up. I like your numbers, but we have to remember that this year is different than past years. Although there were more people showing up this year for all the discounts and promotions, the carts were not as full as last year. Some analysts are expecting the post-holiday shopping to be virtually non-existent. We cannot expect consumer to have money to buy holiday gifts if they have no jobs and banks are not willing to lend. Since consumer are still saving more than they are spending, government spending (thanks to the stimulus bills) is currently the main driver of GDP.
ReplyDeleteYes, Obama did sign some things to bring jobs to our economy. Unfortunately, there is a lag between the time it takes to write a bill and get it passed and then another lag to implement it. Companies are just now starting to get contracts from the government. We should see the rest of the contracts roll out in 2010. This should help create more jobs for America. I am hesitant to say whether it will actually produce as many jobs as Obama promised. Politicians are full of promises when they want something or when their approval rating is declining. It is a different matter to have everybody on board and ready to go when it is time to bring that promise to life.
It is hard to pick a single small or even mid cap stock. There is so much uncertainty and risk involved that it is better to just get a mutual fund or ETF that focuses on these companies. The only way you should selectively choose small and mid cap stocks is if you are able to buy several to diversify away some of the risk. If I could only pick one larger company, I would have to pick Google (GOOG). This company is remarkable. Not only have they captured the American internet, they are also gaining marketshare in China overtop of Baidu. Baidu is basically China’s main search engine. In addition to a growing presence in Asia where the internet is largely untapped, Google just teamed up with Motorola and Verizon to come out with the Droid. Motorola makes the phone exclusively for Verizon customers. This is eventually supposed to rival the iPhone. Google is all about innovation. They are the future. They are cash money.