Marketplace Scratch Pad

Time to jump back in?

Paddy Hirsch May 4, 2009

Many of the conversations I had over the weekend revolved around the question of whether its a good idea to start buying stocks again. A lot of people seem convinced that the rally in the markets is more than just a bear market bounce. They point to lower jobless claims, increased consumer confidence, a lower-than-expected drop in first-quarter corporate profits and the 9.4 percent April rise of the S&P 500 index (its best showing since March 2000) – and say all these factors are beginning to add up.

My gut tells me to stay in cash for now, but if my gut had its way my cholesterol count would be around 400. So I thought I’d shop around for some other opinions.

Calculated Risk is cautiously optimistic. He looks at indicators like the TED spread, three-month LIBOR, and some other frightfully complicated metrics. I’ll let you browse the details and leave you with Calculated’s lukewarm conclusion, which is that there has been progress, but all of these indicators are still too high.

Calculated may be on the fence, but many news outlets are putting themselves firmly in the cheerleaders’ camp. Bloomberg led the pack today with one story headlined: Pending Home Resales, Construction Spending Rise in Sign Recession Easing. It followed up with a piece gushing about the record pace of corporate bond sales, declining money market rates and falling mortgage costs, all of which, Bloomberg says, suggest the global economy is on the mend. Less bullishly, but still somewhat optimistically, Martin Wolf at the Financial Times reckons you could say with some confidence that the financial system is stabilising. And he quotes Ben Bernanke thus:

“recently we have seen tentative signs that the sharp decline in economic activity may be slowing, for example, in data on home sales, homebuilding and consumer spending, including sales of new motor vehicles”.

Reporters are keen to write about the green shoots of recovery. And I can’t blame them. You may remember Scott’s post of a few weeks back, in which he talked about feedback that we’d received here at Marketplace, saying we never had any good news for you. I’m certain that every other media organization is getting the same message: “Stop being so depressing, or we’ll tune you out/switch you off/fold you up and use you to line the parrot’s cage.” And most reporters don’t like reporting bad news exclusively. It takes its toll. So if reporters come across economists or market players with “green shoots of recovery” stories, they’ll jump at telling them. They add balance to the outlet’s coverage. And to the reporters’ lives.

But having trawled the wires, the blogs and the news channels its pretty clear that the balance is still tilted well in favor of the pessimists. The AP has some depressing news from Europe. Leaders there now predict ”a deep and widespread recession” across the continent and say unemployment among the 16 nations that use the euro will rise to a postwar record of 11.5 percent in 2010.

Over at the FT, Alphaville pours scorn on the “green shoots” brigade, and makes the argument that the apparent thaw in global credit markets comes despite weak fundamentals, like jobless indicators hitting record highs and growing underemployment.

And Henry Blodget at BusinessInsider weighs in with a chartist argument that notwithstanding the fundamentals, this recent rally has no guarantee of success. The market may have gained 30 percent recently, Blodget acknowledges, but, he says, sharp 30% rallies are a hallmark of bear markets..

And I’m feeling a lot better about my gut.

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