The sky is falling! The sky is falling! Chicken Little warning strike many observers are also particularly appropriate for today. I disagree. This is not a market collapse of 2008 once again. Common U.S. stocks and selling panic will prove to be a very wrong answer.
The sharp decline in stock prices last week renewed fears that the economy is going in a double-dip recession. Economic growth slowed to stall the growth of gross domestic product of less than 1% annual rate in the first half of 2011. Real consumer spending was negative in the last two quarters. As a rider falls risks when the bike slows down sharply, so that the economy is dangerously close to slipping into recession even before he took a real recovery. And now the standard u0026; Poor s credit ratings have been delivered to the U.S., referring to the insufficient progress has been in Washington long-term fiscal problems.
Against the wind to keep the economy much. Consumers will continue to over-indebted household finances and dangerously balanced. Housing prices, after a sharp drop in prices, threatens to fall further. The effect is a big hit to household net worth, and prevented any recovery in construction activity, which normally plays an important role in the early stages of economic expansion. Unemployment is stuck above 9%, and more optimistic economic forecasts see little chance of significant decline, although the slow economic recovery continued in the second half of the year.
Preparation matters worse, Europe is not very strong on economic issues. Growth prospects are bleak. In the U.S., government policy is dysfunctional and powerless to help reduce unemployment. Although the restrictions on the expenditure of the contract last budget back-end loaded, fiscal policy should be significantly less incentive over the next few quarters. A monetary policy that made the interest rates on short-term close to zero and the 10-year Treasury rate to 2.5%, it appears that no ammunition. And of course, the sharp fall in stock prices, negative wealth effect and adverse effect on consumer confidence.
It s time to sell the stock, which is still well above the lowest point in 2009? I think not. Nobody can predict what the stock market will do this and weeks. Stocks continue to fall, but I think it's a serious problem for investors panic and sell. There are several reasons for optimism in the long term we will see more, not less, market prices.
First of all, I believe that stocks are now cheaper. Price / earnings ratio of just over 14 and also forward P / E multiple, which uses the expected result, which shrank less than 12 º These multiple low relative to historical precedent, and particularly low when compared to taking an income 10-year Treasury of 2.5%. Dividend yield is 2.5%, similar to the 10-year Treasury. Chain stores do not look cheap compared to an average of 10 years of income (known as the P / E multiple Shiller), but today s result is much higher than the average wage, an average of 10 years not good estimate for today s search capabilities of the company.
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In fact, the structure of American corporate profits are reflected in economic activity abroad, including the fast-growing emerging markets such as the activity in U.S. corporate profits is no reason so fast even a tepid U.S. economic growth. The large U.S. multinational companies, the continued growth of emerging markets is the key to future growth in corporate earnings. Many companies, what is happening in China, India and Brazil is more important than the inability of Europe to the house in order, and paralysis in the United States and Japan
There is no doubt that the economy into a deep hole. The enormous amount of deleveraging that is needed after the housing bubble in early 2000 reached only over time. Fortunately, improving household balance sheets. Debt-to-income ratio improved significantly since 2008, although it is still far to go. Family debt-service payments relative to income levels decreased significantly in the 1980s and 90. The recent decline in oil prices also contribute to consumers financial situation. And unusually healthy corporate balance sheets today.
In a house that runs the excess (including inventory shadow foreclosure property) also takes a long time to achieve. But if there is one bright spot in the house the picture is that housing affordability is at an all time high. Some real improvements in the labor market saw a small increase in housing sales.
Yes, there is a problem, but the current situation does not like to use the 2008 For those who believe that the decline in the stock market reliably predict a new recession, do you remember the famous maxim of the late economist Paul Samuelson: The market predicted nine of the last five recessions.
Clearly a strong dose of humility. We all need to be aware of the limits of our ability to predict future stock prices. Nobody can say when the stock market decline will end, but there are some things we know. Investors who are out of stock sometimes, if not very large decreases in the market is always wrong. We have abundant evidence that the average investor more money in the market at or near the top, and tend to sell at a loss and extreme volatility. For a long time, the U.S. stock market provided generous average annual returns. But average investors earn significantly less than the market rate, partly due to poor timing decisions.
My advice to investors to stay the course. Nobody got rich by making a long-term fate of bears in the United States, and I doubt anyone in the future. This is still the economy more flexible and innovative in the world. In fact, at times like this investors to rebalance their portfolios. When bond prices rise on drop in stocks and made an asset allocation difficult for fixed income, as appropriate, as idohorizont and risk tolerance, and then sell some bonds and buy stocks. Years from now will be glad you did.
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