A Bourse Diary

Thoughts on stocks, speculation and ... life

Tuesday, May 23, 2006

Some thoughts on the current stocks situations

Finally, the long awaited correction of the stock prices has come, and all the "don't go too aggressively" statements (which I have made - or not have made in this English blog, but in my German) have "paid off". It is not funny to imagine how it looks like in the aggressive portfolios.

But, to make it sure - I am of course still bullish on this market. And today's rebound is the very last source of such optimism. I just do not use to change my opinion overnight.

In the last few days/weeks nothing really has changed. They say, the investors have suddenly got very scared about inflation and interest rates. But every investor and speculator with some understanding should always be vigilant about inflation and interest rates. There was virtually no news to be "suddenly" scared of.

No, I do not believe we will see any serious inflation. The Fed is watching closely. Globalization pressure, international competition, strong productivity gains and best opportunities for optimal allocation of labor and capital ever, will hold down inflation tendencies. This all hasn't changed.

The favorable valuation of stocks hasn't changed as well. Still the real interest rates are not an attractive alternative to stocks. Though, here I should give a "little" warning:

It is possible, that at some point in near future, a situation occurs, when climbing interest rates coincide with slowing in the economy, housing market, hopefully in commodities as well, hence decreasing inflation. Then you'll have at least temporary gains in the real interest rate, which could take liquidity from the stocks and from the economy. This will lead to a somewhat prolonged consolidation phase, especially when the economy outlook darkens. Remember: the stocks do not suffer under inflation. They are favored by inflation. Stocks suffer under the measures of the central bank against inflation, i.e. higher interest rates.

Anyway, I suppose stocks are solidly founded and will stand. I am more optimistic for the US markets in terms of less volatility and less sharp downturns. Europe is hotter. And the hottest is the case of the Emerging Markets and commodities.

I watch now for following developments:

US idexes to stay less volatile than rest of the world.

Commodities to set for a major downturn (probably not immediately)

Dollar to gain strength later this year.

Interest rates on the capital market not to go up considerably.

We will see.

Disclaimer - I do not make recommendations to buy or sell securities - I just post my thoughts, trades and opinions. Please read the disclaimer text at the bottom of the site


Post a Comment

<< Home

Disclaimer: All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and are in no way intended to serve as personal investing advice and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Readers should not make any investment decision without first conducting their own thorough due diligence. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed.