Wednesday, January 6, 2010

Value's are back to "wacko-land"

Danielle Park, a money manager and blogger in Toronto, is writing today on her perspective of the valuations of the stock, commodity and real estate markets. She calls the situation "wacko-land". Her opinion is usually a reflection of her very disciplined, value based decision making, and keeping her emotions out of the mix. I find her voice to be refreshing when many others are shouting rants. She begins today's article describing the markets in this way...

Stock, commodity and real estate prices (in many areas) are quite simply back to wacko-land coming into 2010. Government stimulus has provided injection-fuelling directly to asset prices. The stated goal was to re-inflate demand and the economy, but the actual result has been to re-inflate global asset bubbles that are just as unsustainable and economically menacing now as they were before.

This week several respected economists such as Stephen Roach, Paul Krugman and Martin Feldstein all said they see 30-40% odds that the US will enter a double dip recession in the second half of 2010. If the stock market is supposed to see these risks 6-9 months in advance, you would think it might have to at least acknowledge the risk at some point here.

Never mind double-dip, I still think there is a greater than 50% chance that the world has actually not yet left the 2007 recession. Remember that we will not know the final end date until probably another year from now once all the retrospective data has been calculated. But we must admit that so far after herculean deficit spending in 2009, at great fiscal detriment and cost to longer-term growth, the US economy only managed to clock a 2.2% annual growth rate in Q3 2009. If this is the US coming out of recession then that is a very poor start indeed!
She writes more, including observations on the real estate bubble developing in China. Read her post here. Her article serves me as a reminder that it is not time to get comfortable with anything more than remaining active in my search of knowledge and understanding. Scanner