A client called the other day and said he read that I was positive about the economy and asked if it was a misprint and I said, no, even with unemployment hovering at 10% I think the worst of it is past and we are on the road to recovery. The light at the end of the tunnel is sunshine. What makes me believe this is that the consumer is spending money. Whenever you go to the stores and see people writing checks, handing over plastic, bumping and clawing each other over the sale bin, you kind of know that things are getting better.
Profits are also up at the brand name products. Colgate, Unilever and Proctor and Gamble posted huge profits and increases that shout people are coming back to those products that sell at a premium over discount and no-name brands.
Ford posted $2 billion profit and that’s extraordinary since Ford has virtually no presence in India and China and is basically starting from scratch in those countries due to lousy management before Mulally took over.
Even Wall Street believes and is betting, according to Bloomberg, that President Obama is leading the U.S. to an enduring recovery. Catch that? Enduring. You haven’t seen that word in ages and it speaks volumes. The other side of the coin is that investors have snagged close to $100 billion of junk-bonds this year alone. This return to investment risk is flashing neon that the economy is coming back. The refinancing of the high yield market is helping those weaker companies avoid bankruptcy because they can now roll over that debt. Another signal is that the default rate in the junk bonds has decreased from 13% to roughly 10% and is expected to decline to a more stable and moderate 2.8% by year-end, according to Moody’s.
Yes, there will be days like the Greek meltdown and the Gulf disaster where markets fall and stumble but the question asked and answered is are we looking for a double dip depression or for a full recovery? Fed Chief Bernanke said in testimony before the House Budget Committee that the economy is healing and repeated what I just wrote that consumer spending and business investment should make up for fading government stimulus.
In the meantime you and i have been here before in 1990, 1994, 2000, 2001 and 2002. For some that remember we were here in 1987 when the markets collapsed but came roaring back for one of the longest Bull markets in American history. The markets will continue their volatility but if you do all the things that smart investors have learned to do: reinvest dividends, buy on dips, reduce withdrawals and keep things simple, the long-term prognosis for your success is clearly positive.
If you have a question call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.
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