The Sector Holds the Key to an Economic Turnaround
Apr 13th, 2009 | By Charles Delvalle | Category: Chart of the DayWhat sectors rise when the economy begins to emerge from an economic downturn? The answer may surprise you.
Source - http://www.onlineinvestingai.com
The chart above is of the economic investment cycle. The blue is the stock market and the yellow is the economy.
This chart shows us what we should already know, that the stock market is forward looking and typically bottoms or peaks out 6 months to a year after the economy.
More importantly, this chart also shows us that bull markets are formed on the back of a healthy financial and transportation sector.
In other words, to see if this is a sucker’s rally or not, we have to see the financial sector bottom out and move higher.
This makes sense. Money is the lifeblood of the economy. If banks aren’t lending it, then the economy can’t expand.
Today, the big question is whether banks are seeing a sustainable turnaround. Wells Fargo announced a $3.3 billion profit and Goldman Sachs made over $1 billion.
But the problem with banks isn’t their ability to make profits in a low interest-rate environment. The problem is the valuation of the mortgage-related assets these banks have on their balance sheet. Banks are basing their leverage on the value of these assets.
If these asset values decline, then banks must write those assets down and raise more funds or deleverage to meet capital requirements.
In other words, earnings or not, banks still have more to do in order to be considered “healthy”. That means this current rally should be one for the “suckers”
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Charles Delvalle is a self-taught market-timing professional and value analyst who's followed and invested in the market for the past ten years. He uses a unique combination of technical and fundamental research to pinpoint rapid profit opportunities with stocks and options.
Charles is also a staunch contrarian and takes pride in finding undervalued sectors and discovering undervalued, cash-rich companies. He frequently mocks government stupidities and points out the "inaccuracies (or lies, take your pick) that government reporting frequently dispels as "truth".
