Have We Experienced Growth?

economic growthSince March, we have seen a violent rebound in the stock market that many are saying is a result from seeds of growth that is being in found in the economy. For those that are active readers of this site know very well where I stand in regards to what has caused such an inflated stock market. Sure, there have been reports that have temporarily shown a reduction in the rate of deterioration, but I am not sure how much "growth" has been found in all of this.

The stock market is often referred to as a "forward looking indicator," which means that historically it tends to be a few months ahead of the actual economy. This is many of the bull's argument regarding not needing a full recovery of the economy to be out of the woods for the stock market. Even though there is some truth to that, there is one thing that the stock market needs to rebound...and that is growth.

Much of the recent green trading has resulted from "better than expected" earnings reports from corporations. However, when looking closer at the numbers, one will notice that increasing sales (growth) are not causing for the loss of revenues gap to narrow, but cutting expenses has been the reason. Sure, cutting expenses is a vital part to these companies becoming more profitable, but alone, it is unsustainable. What is also needed is what the stock market has chosen to ignore the past several months, this being the consumer.

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Without growth of sales, having no consumer in the market will essentially drive many of these companies to bankruptcy. We saw yet another historic company, Reader's Digest, file today. Though the initial cutting of expenses may have surprised many when evaluating their bottom line, if no consumer prevails, it will inevitably lead to many more corporate bankruptcies. I refute the idea that the economy is recovering and that businesses are once again starting to bloom. Instead, I see recent successes as a result of trillions of government spending, extreme cuts to expenses, and manipulated accounting changes which has caused such a quick, violent response from Wall Street and created a mirage of bettering circumstances.

I will discuss more reasons why indeed I cannot jump on the recovery bandwagon and why we could be in for a long haul downward in the coming months on tonight's premium podcast (subscribe here). However, the notion to claim that such success in Wall Street is a result from growth in the corporate sector is ridiculous. Such is maybe the reason Asia suffered such tragic losses in yesterday's trading and why we opened up the week on the wrong foot. Shorts are looking very tasty as of now. Happy Trading.



    Growth will slow further.