Young and Invested

With the incredible rise of equities over the last few months, it feels like a very natural time to sit back and evaluate if this increase can continue in the current economy. As most of the readers will know, the DOW has been floating in the low 9000’s over the last month from an incredible ~45% rise since March.

As indicated by the slowdown in the market rally of the last few months, it feels like a very cautious investing atmosphere.

One great indicator that I’ve noticed of potential recovery is company bids taking place. Disney just purchased Marvel for about $4,000,000,000,000 – that’s a huge $4 Billion dollar figure that will change the entertainment environment. Kraft Foods attempt at a purchase of Cadbury for about $16B was rejected and is now rumoured to bounce back at $21B. Samsung has also been scoping the land for LG and Rambus, of which rumours were denied.

Another great indicator that Alex (Y&I Co-Founder) noticed, as a very attentive consumer, is that magazines are getting thicker and thicker. Vogue has just released an issue that was 3 to 4 times thicker than its issues earlier this year in the thick of chaos. As we browsed through the magazine, our suspicion of an incredible increase in advertisements was proven correct. Furthermore, home sales are up 7.2% despite that home prices are still reduced.

Overall, it seems like companies think we’re out of the biggest recession the globe has experienced. Many interviews from experts in the industry I’ve been reading have been extremely optimistic as well.

What HASN’T changed?

Retail sales are still down, as reported by a 2.9% decrease during August. Consumer debt is still at 124% of historical average, potentially indicating purchasing will remain stable or even lower.

USA’s debt load is still massive and growing. The Federal Reserve has been injecting billions into the financial system, and perhaps this money has found its way into stocks. While the mass of new programs the US government has implemented this year may appear motivating to some, I feel that US’s financial situation is getting worse and worse. This actually scares me; the ramifications of US’s dreadful financial situation are staggering. The country is leading itself further into debt by the day and a point of inability to repay interest no longer appears unreasonable.

And, most importantly, the S&P index has reached a P/E point of 17x, which is relatively slightly higher than its historical average of 16x. Stocks have become more and more expensive since March and although it is possible that the market can keep rising, it feels like a market correction is close due. The market increased REALLY fast in the last little while.

Comments more than welcome.

Image credit: Tim O’Brien (http://www.flickr.com/photos/oberazzi/318947873/ under a Creative Commons

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Last 3 posts by Daniel Eskin

• Short-term Versus Long-term Investments - March 16th, 2010
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