What’s Next?

Markets
by 

Corporate America seems to be asking "What’s next?" The U.S. economy has reached a point where demand is returning. Enough people are buying things again so corporate layoffs have hit their lowest level since March of 2008 (Recall that was the month Bear Stearns went under).

Even though the 84,000 job cuts announced in December was more than economists expected, it should be obvious that we are hitting something of a balance between production and consumption.
Does that mean that growth is ahead? Can we expect companies to start hiring in the near future? Not necessarily. Companies will be hesitant to add workers until they are simply overwhelmed with demand. It’s logical to think that companies will opt to make do with what they have rather than take on new expenses.
*****From the Labor Department’s report, 52,000 construction workers lost their job in December. That’s the 35th consecutive monthly decline for construction. Given the state of the housing market, commercial real estate market, and credit markets, it’s difficult to imagine a surge in demand for new construction that would suddenly result in construction workers getting re-hired.
That suggests there is, and will remain, a large percentage of unemployed who will stay that way for some time.
On the other hand, however, we have to wonder how much companies overshot when they started laying people off. Remember, it is human nature to over-shoot, both in the upside and the downside. It is these over-reactions that create buying and selling opportunities in the financial markets.
There’s no doubt investors over-reacted during the sell-off last year. It’s clear that analysts have been far too bearish with their earnings estimates the last few quarters. It would not come as a surprise to learn that some companies were overly pessimistic and fired too many workers. I think the automakers have almost certainly done this.
Don’t be surprised to see an uptick in non-farm payrolls soon. Also remember to take such an uptick with a grain of salt. Getting the economy balanced will lead to some one-time surprises.
*****My commercial real estate recommendation for Daily Profit readers is showing some life today. Maguire Properties (NYSE:MPG) is up around 12% on very strong volume. This is a speculative investment, but the stock could have a lot of upside if Maguire is able to refinance some debt.
*****It’s looking as though China will come out of 2009 with an 8.5% growth rate – simply phenomenal. And don’t make the mistake of thinking growth there is unsustainable. Consumer demand is improving. Toyota saw Chinese auto sales rise 21% in 2009. That’s impressive.
As you know, I was bullish on China throughout 2009. And my SmallCapInvestor PRO readers have benefited with 84% and 118% gains from two of my top Chinese recommendations.
China operated more like a corporation in 2009 than most investors realize. And that means it will continue to reward its investors. So if you don’t have any Chinese stocks in your portfolio, I’d like to help…
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