The headlines that seem to be dominating stockmarket reporting these days is whether the stock market hit bottom a couple weeks ago when the Dow Jones hit 6,500.
Well, I not so bold as to guess whether it did or didn't. But on a national and global level the stock market tends to be a leading indicator of where the economy is headed. I hardly call a couple good week on the market a tend, but at least it's not falling off a cliff like it has been over the past 18 months.
When I was studying finance, there was a rule of thumb stating that the stock market leads an economic recovery or recession by 18 months. In other words, when the stock market picks-up steam and is consistant for a few months period of time, it tends to indicate the economy will get stronger. I use to believe this indicator and it use to hold up. But boy did the stock market miss it on this recession. I think that's why we saw these huge declines because every one was caught off guard with the size of the financial/housing crisis.
So all buyers of assets are sitting waiting for signs of the turn-a-round before they jump into buy. These buyers include not only stock market buyers, but home buyers, business buyers, commercial real estate buyers, bond buyers, venture capital, etc.
I've read that there is $11 trillion dollars in cash sitting and waiting for the opportunity to buy something. When these folks do decide to start buying, will it be a steady and calm buying process or a bit of a frenzy?
Just like the ups and downs of the stock market, I believe human behavior is one that panics and when folks decide to jump in, it will be a bit of a frenzy. So when folks decide to start buying businesses, we can expect a sudden jumping in of buyers.
No comments:
Post a Comment