Wednesday, March 21, 2007

Interesting Reaction

Clearly investors were looking for some optimism. Did they find it today with the Fed's decision to leave rates at 5.25? I suppose. At this point, it means that there is still some steam left in this market, at least in terms of how long we can ride the positive corporate profits. I still think that there are some reasons to be bearish as a whole, and that is because of the subprime mortgage situation. The health of the U.S. consumer is not great right now. When the real estate market was hot, people were taking loans on houses they couldn't afford, and it was ok. It was ok because home values were appreciating 10 to 20 percent per year and banks weren't taking much risk. Well, that has changed. Things are starting to cost more, whether it is building materials, fuel prices, etc. And now people can't rely on their home to be a built in investment. People are in loads of debt right now, and there will be no one to bail them out. I think this could affect the economy in a negative way as long as the housing market continues to be flat.

There are some reasons to be bullish as well. We are still seeing strong growth throughout the world. The BRIC countries (Brazil, Russia, India, China) are all experiencing a form of industrial revolution, at least in terms of efficiency of their markets. This is positive news for investors, as it should carry over throughout many other countries as well.

No comments: