As much as I've enjoyed the recent market rise, the activity over the last month have raised my caution level. I am puzzled and at the same time amazed at how we can keep moving upwards due to some highly optimistic expectations. Sure, fiscal and economic stimulus monies are casted everywhere all around the world now, but can we please pause to remember that we are in a recession and that the economy is incredibly weak??
Take a look at yourself - do you have a job; are you saving more now than ever before; have you bought anything lately; dining out as much; enjoying less paid entertainment, yada, yada, yada. The end consumer is strapped and will be so for years to come. Sure we may have a rising middle class in BIC (Brazil, India, China), but we can't rely on them to pave our road to a better economy (they're busy literally paving their own backroads). Let's be realistic, without end consumers buying corporate earnings will disappoint and keep disappointing.
You have to understand that for the last few years, corporate earnings were ramped up because of easy credit. No more is easy credit. Profit margins will contract and companies must readjust - if we're lucky some will stay in business. Financial companies were the first sector to readjust. Now, we're moving to other sectors. Everyone needs to fix their balance sheets, and this process will take a long time.
Charge-offs, write-offs, whatever you want to label these are still to come. Lots of it. Make that, the bulk of it. I'm not talking millions or billions of dollars; I'm talking trillions. Sure, the big-rush-over-the-cliff credit crisis may have already occurred, but we are still free falling down hard. My take, buckle the seat belt and get ready for some rough riding. Stay disciplined.
