Wednesday, August 10, 2011

Sometimes markets and economies are linked. Not this week!

Zachary Karabell writing at The Daily Beast today does a great job of explaining why the recent gyrations -- he calls them flash crashes and flash rallies -- do not say much about what's really going on with global economies or the U.S. economy.  What we've really got is slow growth, which up until the S&P rating downgrade last Friday, was good enough for Wall Street. Corporations keep rolling in with quarterly reports showing improved business profiles, better profits and growth.
As a holder of a retirement 401(k) I remain invested in American corporations and the S&P 500 Index and confident about the future. For instance::
- TravelCenters of America just reported its second quarter results showing a $21.7 million net profit thanks to improved customer spending at its 234 travel centers throughout the U.S. Fuel sales, mainly to truckers, were up 4 percent over last year because more goods were being ordered and delivered around the country.
- Macy's Inc., today, reported a 64 percent increase in its second-quarter profit as its strategy of tailoring merchandise to local markets is helping to overcome an overall sluggishness in the economy. The department store chain is also boosting its full-year profit outlook. Macy's chairman and CEO Terry J. Lundgren described the quarter as "the most successful second quarter and spring season in more than a decade."
- "With worldwide demand for products such as aircraft engines and gas turbines growing," General Electric Co. has created more than 8,000 new jobs in the U.S in the past 18 months. "From a new locomotive plant in Fort Worth, Texas that will create 775 new jobs to an aviation composites facility announced just last week in Ellisville, Miss. that will create 250 new jobs, GE’s expansion has unfolded across the United States.
For me, this all adds up to steady U.S. economic recovery and slow but positive growth. I truly don't understand why investors have been going crazy on Wall Street this week. Can't we take a deep breath and move forward, solve our problems and be America?
Karabell is helpful in that he says market volatility has nothing to do with long-term reality. Here's what he said today at "The idea that the recent sell-off validated the grim news in the economy should have the corollary that Tuesday’s massive surge validated a rosy view of just how stable everything is and how much we are thriving. Both conclusions would be wrong, because market moves such as these do not validate any directional view of overall economic conditions."
"Markets fall," he said, "economies fail; markets soar; economies thrive. Sometimes they are linked, and often they are not. Forcing a link won’t make you money in the markets, and it won’t help us solve pressing issues of where our economies are failing the needs of citizens. Obama should have made that clear; pundits should have made that clear; that they did not is almost as unsettling as the whipsaw in the markets this past week."
 Does this help?

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