Yet another stockbroker

Head to head for the supercycle and the subprime mortgage lenders.

In the end of 1999 there were discussions that this was the new economy where recessions were something for the history books. That was not true then and the concept what we see today is a supercycle where US are going into a soft landing and other regions of the global economy are taking the responsibility to withhold the growth. Maybe there is some truth to that, maybe not, time will tell.

Though a fact is that something is going on, GM is no more the world’s biggest carmaker, China passed the US as Japans biggest trading partner and the US stock market just keep going to new heights.

The profit growth for the first quarter was 6% which is around 3% higher than expected, though not double digits that been a fact for the last 12 quarters. The Dow Jones a have going trough 13000 which is a psychological important number. According to sympathisers of the Dow theory everything is in place for the market to continue the strong uptrend the market been in for some years now.

No news in the housing market, the weakness is continuing and the sales on available residences are down over 8%. The reason to one of the biggest moves on the downside since the end of the 1980: s is the problems with subprime mortgage lenders that having problems getting there money back and can not refinance cause the housing prices are coming off and giving no space for refinancing. More and more subprime borrowers are getting closer to been borrowing more than the house or flat they been borrowing for are worth and can not refinance it with new loans when the prices coming off.

The situation of the subprime mortgages in the US housing sector is serious and can kill the theory of a supercycle very quickly if the weakness in the sector is continuing. The sales for the housing sector have in the end of the first quarter been strengthen up with an increase of 2,6% but there seems just to be a small correction in an steep downtrend. The second quarter will be important for if it will be a soft landing or a recession in the US economy.

The building and investments in the housing sector will be holding back the US growth till at least the second part of 2007. What we see right now is a overall weakness in the US economy but the market seems to think this will be just a short correction in a strong uptrend which leads to that the financial market foremost looks at the levels of profits and the consistently low global inflation that seems to be intact at this stage. Other aspects are the low unemployment rate connected with the strong buying power that the US consumer are withholding and the expression “never underestimate the US consumer” is still appropriate to be used.

Other aspects not to underestimate are the strength in Europe. Germany have recently having very strong numbers when it comes to consumer confidence and growth, likewise for France Great Britain and Spain, which is a fact that is very important to withhold the valuations in the stock market.

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This entry was posted on Saturday, May 26th, 2007 at 11:03 pm and is filed under Weekly Market Update. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.