October 5th, 2009
01:40 PM GMT
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LONDON, England – Based on fundamentals, the markets shouldn't be at the levels they've reached. Some hard cold realities have been reminding investors that the long awaited recovery may turn out to be more anemic than anticipated.

 Have markets over-heated?
Have markets over-heated?

Take last week for instance. U.S. stocks fell worst than expected on monthly manufacturing numbers and a horrific employment report.

The number of U.S. workers on payrolls fell by 263,000 in September - much worse than expected - and the unemployment rate rose to 9.8 percent, a 26-year high. To make matters worse, the average workweek fell to a record low of 33 hours, hardly encouraging to those who have been buying stocks on recovery hopes.

Nouriel Roubini, who predicted the financial crisis, is bearish on the market. "Markets have gone up too much, too soon,too fast," he said in an interview over the weekend with Bloomberg.

"I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U-shaped, that might be in the fourth quarter or the first quarter of next year," he said.

Roubini is not alone in his thinking. The head of global bank HSBC, Michal Geoghegan, is worried the economic recession could be worst than some anticipate.

"Is this a V recovery or a W?" Mr Geoghegan asked in an interview with the Financial Times. "[I think] it’s the latter. [If I’m right] we have to be very careful we don’t grow the balance sheet so far before the recovery has come only to write it back into the impairment line later on. I’m cautious about growing too fast."

And economist Lena Komileva of Tullet Prebon said the weak data, specifically referring to the manufacturing data out of the U.S. last week, "do challenge the market's optimism that this year's capital markets rally is the bellweather of a V-shaped economic recovery and it forces a negative revision of future quarters growth projections, which challenges current valuations."

In simple talk, the markets are ahead of themselves. The global equity rally has added about $20 trillion to the value of stocks worldwide since this year's low on March 9, according to Bloomberg.

Governments have spent about $2 trillion on stimulus, while central banks have taken extraordinary measures to try and get growth moving again.

All that liquidity and hopes of a global recovery have pushed stocks substantially higher, more than 50 percent for the S&P 500, and nearly 50 percent for Europe's Dow Jones Stoxx 600 index from their March lows.

While markets are off their best levels, they are still too high based on economic reality. I suspect the disappointing economic numbers last week, won't be the last. If Roubini and some others are right, markets have much further to fall.

Do you think the markets are too high?



soundoff (37 Responses)
  1. varsha

    When the recession had just started, I'd heard a few wise people saying that this is the best time for buying quality stocks as collective fear has brought prices unreasonably down & they'll bounce back soon. Soon I heard every other guy giving the same advice. That was when I realised the herd mentality of investors has started working & is now going to push the prices too high.

    While the markets should be driven by logic, they're actually driven by a herd mentality, that of profit maximisation during 'expansion' & loss minimisation during 'recession'.

    Soon there will again be a bubble, as people have started riding on the bull again & there's no stopping this sentiment driven by greed & excess of it. The greedier the people, the faster the bull run.

    October 5, 2009 at 2:31 pm |
  2. robert patel

    Hi Todd,
    All the talk of green shoots ( even green shoots take time to grow into sizeable plants before they can be productive) and the ups and down of various indicators,the fundamentals still indicate a slow/poor recovery.The riks of falling into a double dip recession are very much present.

    If we become too optimistic we may end up fulfilling Alan Greenspan's prophecy that we are bound to repeat the mistakes of the last few years.

    That we cannot afford to repeat!!

    October 5, 2009 at 4:25 pm |
  3. AlSharpton

    Cheap imports from China = Unemployment

    October 5, 2009 at 5:35 pm |
  4. Ivan B.

    I think we live in a twilight world , where on one hand the Wall st.market exists and dances its devilish whirl and on the other hand are the millions of ordinary people depending on jobs and weekly wages and those will continue to suffer. They will be ask to take even lower wages..as a duty to the company which employes them , that is if they are lucky to be employed at all.It will come to sad end one day because these two side of the society can not be reconciled.I don t know what will happen,but in the mean time the goverment will print more banknotes to shore any bad debts. See California issuing paper notes to cover public sector commitments .Capitalism as we knew in the past,can not continue in its present form. Sorry ,if I spoilt your day !

    October 5, 2009 at 6:33 pm |
  5. Bhaskar Bhattacharya

    You should visit the website of the Economic Cycle Research Institute based in NY, http://www.businesscycle.com.This is a private organisation that is in the business of forecasting turns in the economic cycle through the use of leading indicators defined and developed by them.They have been in the business for close to 80 odd years and have fine tuned their leading indicators such that their forecasts are pretty accurate.They predicted in April this year that the recession will end around September.That has beeen recently echoed by Ben Bernanke and a whole host of other economists.Their present forecast is that the recovery will be V shaped and will surprise most people on the upside.Once again,do visit their website and you will enjoy their take on what's likely to happen and more so their concept of using leading indicators.

    October 5, 2009 at 6:52 pm |
  6. Mike Chase

    Todd, you are right on the mark. The consumer driven economy is not going to recover quickly, if ever. With unemployment at almost 10%, and the workweek shortening where is the buying power going to come from to support a consumer led economic recovery. To complicate the situation further, the consumer is rebuilding his balance sheet and paying borrowing down as opposed to borrowing more. Result soft consumer demand.

    Compound this with the rapidly growing US government debt and the deficits of other G20 nations like the UK. How long will the Chinese be willing to lend the US money? When will a treasury auction produce real problems for the bond market? What will happen in 2010 when more mortgages reset?

    It is easy to point out risks and difficult to justify a recovery based on the consumer driven economic model of the past half century or so. It is time for a new world economic model.

    October 5, 2009 at 6:54 pm |
  7. Irene

    The market isn't selling off though.

    October 5, 2009 at 7:20 pm |
  8. Sanjiv Brahmbhatt

    I think its right time to reconsider trade with China. Otherwise within next few years China will eat US economy.

    October 5, 2009 at 8:17 pm |
  9. GCE

    Hey. Does anybody here get the feeling that with all of the training or financial/economic expertise available (as well as the Greenspans of this age) we are really at sea or simply put we are at our wits end? By now, even the most visually challenged layperson would have seen into the extreme fragility of global finance and the falsehood it represents. The gospel of consumerism has fallen like the Berlin wall. Maybe it's time for a new economics.

    October 5, 2009 at 8:20 pm |
  10. michael

    Yes, I think you should continue posting stories like this. I mean, one can and should never forget that investments come with risk. Personally, I think your stories should create more fear; maybe you can get everyone to pull their money out of the Market completely and stuff it under a mattress instead.

    Frankly, guys...it's your lack of responsibility that has created this mess.

    October 5, 2009 at 8:28 pm |
  11. HA-DONG

    The DOW is about 9600 less than his level one year ago .How could we say that dow is so high?

    October 5, 2009 at 8:32 pm |
  12. Chris vT from Holland

    The simpel fact is that nobody knows and what economists write today makes a lot of sense, untill you read it next year. Having said that it is obvipus that this market has nothing to do with facts, you`re in or out and who will be right is anyone`s guess, in other words, this has nothing to do with investing, we all might as well go to Vegas.

    October 5, 2009 at 9:09 pm |
  13. john mcelhatton

    im english 55 years old and i was made redundant 7 months ago ive tried for hundreds of jobs but having no luck .i remember last big recession in the 80s and lost my job then also so i know the feeling well its bad everywhere in the world and one can only blame greedy bankers for this crisis surely they must have seen it coming ? but they did nothing and look at the outcome.john

    October 5, 2009 at 10:03 pm |
  14. Brian Soe

    Without imported goods cheaply produced in China or India,
    commodity prices will be higher, the inflation will shrink the
    real purchasing power of Americans and global consumers.

    October 5, 2009 at 10:14 pm |
  15. Ron Derven

    If something does not begin to happen to open up credit markets for small businesses, we won't have a V recovery, we will have and upside down U, double-dip recession. We have interviewed small businesses for over 30 years now and have never seen a situation like what we have now. For example, we spoke with a retailer who has run a successful business for the past 35 years. He said that he will close his doors January 1, 2010 if the holiday season is not a good one. We asked him if he preferred today's credit environment to, say, the 22%interest rates of the Carter Administraton. He preferred the Carter Administration because, he said, there was money available. that says a lot.

    RonD

    October 6, 2009 at 1:26 am |
  16. KKK

    More expensive imports + unemployment => Consumers cannot afford

    October 6, 2009 at 1:46 am |
  17. Samar Sircar

    Companies becoming more stable by posting better financial results but more people out of work! There is a contradiction here so it can't be that the economy as a whole has turned around.

    This is a bull run based on hope, not fundamentals.

    October 6, 2009 at 2:01 am |
  18. george

    Look to cities where population is growing at 5% and above, with very little space. This is why we call it Real estate. because it is real. the rest are stocks, bonds, option, future etc.....learn English first and than invest.

    October 6, 2009 at 7:36 am |
  19. Per Holmlund

    Cheap and expensive

    Minus 30 percent is how S&P500 have developed over two years and how it developed since 2000. Who calls a market that has delivered minus thirty percent over nine yeas for expensive? And if the development had followed the trend from early 1980 to 2000 S&P500 should bee around 4000 and not 1000! So the market is cheap in relation to its own development since 1980 and the retiree’s expectations.

    But if the world ends up in a deficit swamp in some years without growth the levels of today will be seen as expensive in retrospective, when we are looking back on 2009 in 20XXX. But today the market shows technical strength and people should focus on October 2003 and 2004 instead of the crash of October 2009.

    So cyclical with the reading of FIBER’s leading indicators the market has more to give. The problem will come in some years when this cycle runs of steam. So believe what you see, make the trend your friend and don’t forget that gold is shining.

    October 7, 2009 at 10:59 am |
  20. aib interactive

    While we wait this V,W or never ending recovery... Invest in Brazil. Park your money here for a few years and watch it grow in a stable economy. I moved here looking for solid investments with absolute returns.

    October 7, 2009 at 6:21 pm |
  21. marcjay

    What kind of jobs can realistically be created in order to put people back to work anytime soon? That is the dilemma in all this.
    Not everyone can build infrastructure or become part of a greener economy, either easily or at all.
    We don't manufacture much in this country anymore, and much of the service industry has been sent offshore as well.
    A few companies have done well with this strategy, but most have suffered.
    No work, or less work, less money being earned, leads to an inexorable slide backward for individuals and families.
    And things could have been even worse without the expensive government interventions that we have seen? WOW!

    October 8, 2009 at 5:59 pm |
  22. vineet

    Cheap imports from China = Unemployment = recession

    October 9, 2009 at 11:55 am |
  23. dismal scientist

    This recovery might have no shape at all for the foreseeable future - no 'v' or 'w' but a long plateau while everything settles down to a new financial order. If anything it will resemble a long 'underscore' symbol.

    October 11, 2009 at 5:48 pm |
  24. aib interactive

    Exactly why these "wise people" started saying this, they control the herd. Because their influence makes them money..
    Look everyone it is a simple as this; Invest in Rio de Janeiro and in a fews years sell for triple. I know where to buy. I know how and who to work with. I know how to manage your investment.
    Please visit me at 'American In Brasil Interactive' to learn more and stop swimming in a dirty pool!
    Rio is not only ripe for investment it is a great place to be!
    Beleza is a word you will come to know...

    Mark
    ~american in brasil

    October 12, 2009 at 2:08 pm |
  25. Stevens

    If the stockmarket is a fair representation of the state of the economy, then how do you expect it to rise any further? If unemployment keeps rising, how can you even consider that we are in a recovery?
    This whole thing is artificial, like the Fed buying it's own Treasury-bills.
    It seems only logical that stocks will fall,sooner than later.

    October 12, 2009 at 4:09 pm |
  26. Steve Franks

    Our government is operating one enormous Madoff Ponzi scheme. The world financial system revolves around the price of oil and oil is purchased in USD. We, the people, the US government with our military control the majority of the world oil in the Middle East. The OPEC countries currencies are pegged to the USD. We are in bed with the enemy, Islam (Islam is at war with US, the Kawages – unclean) and supported by the majority of the OPEC countries, the financiers of Wabisim extremist Islam i.e. Saudi Arabia and the bull shit Shia religious Iran. Exxon-Mobil, Chevron, Chevron still distribute (“The Prize” by Daniel Yurgen”) Saudi Oil with their world wide system of refineries, distribution terminals and 20,000 plus convenience stores with sales collected in USD, thus transferred to the Middle East in USD. The wheel goes round and round. Whose money did the US government use to bail out the banks in mortgage collapse? As a direct result of $146.00 high oil price, created by the Dubai and New York Mercantile exchange, the Arabs to pay for the billions of USD of construction projects in Dubai, Saudi Arabia, Kuwait, and Oman. Our Treasure Bond/Note are purchased by the Chinese and the Arabs, our trade deficit is still in the still in red, even in a worldwide recession. So who the f- does the American citizens think are paying for the war in Iraq and will pay for our healthcare? Our government is just operating a Madoff Ponzi scheme that hopefully will never be figured out by the Middle East governments and the Chinese because if we fail they fall with us, the glass house collapses. We, the US citizen are the brains behind the world dominance and they – all nations – too are chasing the American Capitalist dream, an idea of freedom, we back our ideal up with the US military, because we no longer export oil and don’t mass manufacture enough items that the masses will procure, thus we are a debtor nation. And if another country doesn’t like our policies and has oil, we will send in our troops to back our idea/system and kick their asses i.e. Iraq. If we, the people of the United States can expend $1 trillion USD on Iraq – a 4,000 year nation that haven’t got it right yet and will probably take another 4,000 to come to harmony – because they haven’t figured it out that there must be a separation of church and state, backed up with the military to guarantee the idea of freedom for all. Then for our and our children’s sake, we can help our own people with the basic human right – National Health Care. The citizen of the United State need to travel more, especially to the Middle East and especially to qualify to be the President of the United States. My ideal president would be, if he were alive today, John D. Rockefeller because he understand the importance of hydrocarbons in our everyday life. Hopefully Obama and his staff will come to realize before we continue to lose our power of world dominance.

    October 15, 2009 at 10:54 am |
  27. Mike Chase

    Steve,

    Unfortunately, I tend to agree with almost everything you have said. Incidentally, I am an ex-pat living in a "third world" country and you are right on point when you suggest that living outside the US should be a requirement for a leadership position in government. Speaking a language other than English would also be a good idea.

    Just keep in mind that inflation is the only solution to the US debt problem. Zimbabwe and Mugabe did a good job of managing their government debt, but admittedly this approach does have a down side.

    Mike

    October 16, 2009 at 6:51 am |
  28. Ivan B.

    Steve, it took me 10 minutes to read and digest your economic trivia and I was doing all right till I read your last sentence " Obama...will come to realize before we continue to lose our power of world dominance "
    I think USA lost its power long time before Obama took over the presidency. If you remember this current economic crise was well advanced in January 2009. Bush and his sidekick Cheney miscalculated the war in Iraq, this being a public affairs disaster. Not only that ,but by removing Saddam they opened can of worms, which is dragging on ,like we will have to deal with Iran now and so on.
    No more "dominance "from people like that !

    October 16, 2009 at 10:24 am |
  29. aib interactive

    Steve I have seen this bigger picture you paint for a decade now. Though it goes back alot further. As we know a grand theft like this has been in the works since the banks..er..FED take over in 1916. "The Grandest Heist" The last tens years I believe is the final page in the plan to steal the wealth of America and distribute the power to a handful of families. This grip around the throats of Americans which is squeezing every last dime out of , I have to say their pockets. I, like Mike live outside the US now(3mos)...Brasil. I love Rio and have found more opportunity here than in American. The future is bright here unlike back home where all I hear from family and friends is fighting over phantom issues while their pockets are sucked dry. Wake up! and focus on how the world works...many of our allies and neighbors offer health care to their people...why? because it is the "Christian" right thing to do! I pray and hope Obama can change the direction of the country but it might be like trying to stop a boulder tumbling down a mountain side. If anyone can broaden the perspective of Americans it will be him. I agree the President should have a deeper understanding of the world community. Americans themselves need to cross the US boarders and realize America is not #1 but part of a community. While we were holding our BIG #1 finger in the air the last 20 years. I watched all our factory jobs go to foreign countries, health insurance sky rocket, private armies the size of our own, and a pill for everything....BUT I still believe in the people, once educated on the TRUTH they will and have the power to regain control..It was set up that way.

    Have a great weekend everyone and remember to...experience brasil!

    Mark
    ~american in brasil

    October 16, 2009 at 4:29 pm |
  30. Ashlee Guy

    Yes, the market has gone bad people are still getting laid off and more and more and are now depending on unemployment. From the gas prices rising to the food pricing rising and employers beign replaced by machines, the market is getting real bad. The stocks are low and dropping and just down. Some companies are closing and and property values are still rising. Also in some states they are now trying to lower minimum wage. The market is getting bad, but on the other hand things will get better, and the market will recover.

    October 16, 2009 at 5:58 pm |
  31. Rick

    The next thing you will see is a Chinese company purchasing Wal-Mart and Sams Club. Considering Wal-mart is americas largest employer and gets most of its products from China.. Right now other countries can't take us with their military, so they will take us with their money.

    October 23, 2009 at 1:26 am |
  32. aib interactive

    The Chinese have been winning the secret war against the US...by taking advantage of our corporate need and top priority of making more and more money. Influencing our GREAT leaders over the past three decades(Rep&Dem) to opened the doors for this financial take over. The Chinese will not have to fire one shot before victory is won....and the wheels on the bus go round and round!
    if you want a definite solid future, invest in Brasil!. I am not the only one taking about this, read Sam Zell's comments in this recent article from World Property dot com
    http://www.propertywire.com/news/south-america/brazil-mortgages-coming-soon-200910223604.html

    Mark
    ~american in brasil

    October 26, 2009 at 1:11 pm |
  33. Ivan B.

    Hey Mark of Brasil, I don´t know why in every email you propagate Brasil as some kind of heaven on earth. Just looking on the last week news about shoot outs between different Mafia cartels and police in the streets of Rio ! Not very encouraging to visit.....good luck to you otherwise. Ivan.

    October 27, 2009 at 10:36 am |
  34. aib interactive

    Hey Ivan~Its Mark of WashingtonDC 30 years, lived through the sniper shootings. Then later in NYC 8years, for the trade towers and I remember watching Columbine erupt one april 14th while having a beer in Penn station. Then there was talking my terrified friend, a professor at VT one twisted spring day. He was hiding in the theater with his students telling me...never mind.
    So, whats happening here is a microcosm of the world in which we live. If you open a history book on this isolated section of Rio de Janeiro(485 square miles) the largest city in Brasil. You will find an historic problem in this area which they are addressing. As CNN, BBC, etc will gladly show with limited detailed commentary, obviously.
    My message remains the same. Invest in Rio and watch your money grow exponentially over the next four years.
    I promise to keep you away from "that" part of town. Just like I wouldn't have taken you to Alabama Ave in SE DC ten years ago when I sold Real Estate there. ...good luck to you too
    Mark
    ~american in brasil

    October 30, 2009 at 2:34 am |
  35. Hans

    cheap imports from China equals to unemployment, but on the other hand, without those cheap imports some of you would not survive anyway. I think it should be equalised by increasing US exports. US are more advanced in terms of technology and machinery and should make them as its primary exports. I think US trade deficit is caused by oil imports from middle eastern countries. Why don't balance it by exporting technology? Like for e.g. selling equipments needed to make water purification factories?

    October 30, 2009 at 7:57 am |
  36. Marshall in Spain

    Some time back, I had my guess!! at where the bottom of the U.K. FTSE would be when the recession started. I was happy to state it would be 3,500. I was wrong it only went down as far as far as 3,513. The current situation is that the markets will still move up and down until at least 2012. I do not worry as although this is a more serious development since the great depression I believe that you still have to be in the markets. I have been investing for some time on a "Pound Cost Averaging basis" and so far I am up 30%+. My concentration is not on Europe or the U.S.A. it is in the upcoming countries of the East. I am therefore in BRIC's. Brazil (Oil reserves they will not need, as they got into Ethenol some 30 years ago). Russia, who supplies most of the gas and lots of oil to all of Euroope, India with the surge of population and development and of course the richest of them all at the present time(Cash Wise) China. We have heard of "The fall of the Roman Empire", just maybe we will se the collapse of the E.U. caused by all the corruption in many of the countries. Europe is in a very sick position therefore it will take some time more than expected to recover. I therefore expect the markets to still be volatile for several years yet.

    November 8, 2009 at 11:39 am |
  37. tom clancy

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    September 14, 2012 at 2:26 pm |

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