Is there a Disconnect between Wall Street and Main Street?
By Ken Mahoney
October 2009
While most of us are concerned about the high unemployment rate – currently running around 9.7%, the poor housing market and reduced consumer spending the stock market has shown significant gains. Just since the spring of this year the market has rallied 30 percent or better. So why do we see these gains on Wall Street despite the concerns of Main Street?
Often with the market we see these extremes. We see it like a rubber band stretching and contracting. Earlier this year, we saw the rubber band being stretched on the downside - the fundamentals were poor and the market fell off sharply. Now, we're seeing the other side. Both trailing and forward P/E ratios are at some of the highest levels to date. During the past six months the market has performed well in large part because of a sense of optimism with regard to both national and global economies. The financial markets appear to be doing well, leading many, including Federal Reserve Bank chairman Ben Bernanke, to declare the recession is over.
Governments around the world have provided funding to help stabilize failing or potentially failing financial institutions and large corporations and as a result we are seeing the improved positions of these financial institutions and corporations. At the same time experts state the U.S. government is operating at a 10% deficit. Added to mix is the devaluation of the U.S. dollar – since the early 1970’s the value of the U.S. dollar has decreased 25%. But is the upswing in the market that we are seeing real and long term? What Wall Street is considering profit may in fact just be the bail out funds. Unfortunately, fixes are generally temporary and the failure of certain industries – the airline industry for example as well as small businesses – could be next.
And yet, despite the concerns of Main Street, we do see Wall Street performing well and we see small investors, not just the large institutional investors, with the opportunity to take advantage of these optimistic market conditions.
I welcome the opportunity to discuss Wall Street versus Main Street with you in greater detail. Please feel free to call me at 845/371-0101 or email me at kmahoney@auroracapital.com
And don’t forget to visit my blog for additional articles and comments - http://kenmahoney.blogspot.com/
