Is Winter Over?
Most investors are wondering “Where to from here – is ‘Winter’ over?” Having been through nearly two years of pain with international shares we encountered a period, earlier this year, when the consensus view was for the US economy to recover and the sharemarket to move up. That situation has now changed. Investors either don’t accept that the US economy is out of trouble or they are being put off by other issues – namely their lack of faith in corporate America.
In the USA, a panel of six economists, the Business Cycle Dating Committee, determines whether there is an official recession or not. The committee tracks four indicators: employment, industrial production, personal income and wholesale and retail sales. In July they reported that industrial production, personal income and wholesale and retail sales had not only risen but had exceeded previous peaks.
The same could not be said for employment. The US Bureau of Labour Statistics also reported in July stating that 1.8 million jobs had been lost from March 2001 to April 2002 and only 60,000 had been created.
The Chairman of the Business Cycle Dating Committee is Professor Hall of Stanford University. He says “In my years on the committee, which started in 1978, we have stuck to the rule that we would not call it a recovery until we saw employment back to its previous peak.” According to the Times, “?he leans toward recovery...but if the other indicators should falter before employment comes back?he would be prepared to declare a double-dip recession or a prolonged recession.”
The jury may be out on the question of economic recovery but it has most certainly delivered its verdict on the other issue at hand – confidence in the markets. Our experience with clients in our own firm suggests that many are very sceptical and are unwilling to enter the market with new money. Most are resisting the urge to sell at this stage though a few have opted to cut their losses and head for safer fixed interest opportunities. In the US, the latest Gallup/UBS Index of Investor Optimism is at its second lowest point since the poll began, the previous low being after September 11th.
Individual investors are not the only ones being cautious at present. Professional money managers face dilemmas on a scale much larger than most. A manager may think recovery is imminent but investing too soon may further dent fund returns and exacerbate net outflows. Large amounts of money are being held as cash rather than being invested at this time and the jitters continue – it’s self-fulfilling.
If you have over NZ$350,000 to invest and want truly impartial advice, contact us to find out how we can put your money to work to fund your important goals.
What other investors say about us>>
