I guess most of you have eaten all the reports about "DD or not DD" from investment banks and news agencies. Preparing the report could be easier than digesting them. But, hey in the end we have to decide if should we be in or out of the market but let me know what is my decision....leave the market now!!!! Don't expect too much for double digit gain at the end of 2010. Let me tell you my reasons:
1. Today, Bernanke's testimony had nothing new. He also admitted that double dip "can never be entirely ruled out". In my view, the current situation is very sensitive to bad news and insensitive to good news. I believe that Soros' reflexivity in the market is more skewed to the downside.
No doubt that the US economy is on the recovery path. Yet the speed is still too slow and the acceleration is powerless (imagine our 70's Fiat is trying to reach its top speed, it takes time and momentum). Anything can happen within three month from now which can stop the economic recovery. As example, if that mentally unstable North Korean has a fat finger amplified with severe tremor and drinking Soju too much (dude they sank a South Korean patrol ship already) we can have another crash in the market affecting the recovery (also nowadays stock market and economic activity are so integrated).
2. Who doesn't like Chinese food? The Chinese cook so well not only the food but also the number. Chinese export surge 50% in May yoy. Assuming the number is trustworthy. 50% is a significant increase despite last year was the worst export season for China. But to me export is not a strong leading indicator. Few downside and questions: European market is entering austerity period, What are they exporting? , Wage pressures in China makes export goods become pricey. Most of all I don't see that Chinese internal demand and BRIC alone is strong enough to pull global economy out of recession. Remember last year European economy was not so bad. But now, even the Germans want to migrate to Switzerland.
3. US SME is still dying for credit. Two main problems in US banking system. The big banks still don't pour credit and small banks have a very weak balance sheet and even gone bankrupt due to sour property market. On top of that, the banks might be required to increase the CAR....dude no way they will expand the lending. Well, the US gov's still have stimulus budget to jump start the economy at grass root level but they must use it wisely since half of it was spent already with a very minimal job creation effect.
4. I am not sure if consumer confidence in the US can improve or even stay at this level. The tanking stock market performance in May will not make them happy. Property market is still flat. Gov't stimulus money may have to go to saving for the rainy days or for the different priorities (paying bills and dues VS buying iphone 4.0). The good side is some companies offering shares buy back and dividend increase but I doubt that this practice is sustainable. To me the strongest indicator is GE. If GE can do it, we might be out of the wood.
