US recovery- Reading the rising breezes in between the hurricanes

The Great Financial Crisis also produced a crisis of confidence among investors. Investors want to see something at least resembling a normal market. A US recovery is the only working mechanism able to provide that reassurance. Everybody, from day traders to managed funds, wants to see solid gains and solid growth.

The “mixed signals” issues- Where the breezes are coming from

The US economy has been sending a very garbled series of messages. They may be accurate, they may be subject to interpretation, but the fact is that they’re also making market analysis pretty difficult.

For example:

Employment

Employment figures have been erratic, including some big spikes and periods when the US employment market looks positively comatose. There’s an issue here, and the issue is that the US employment market is no longer the industrial market it once was. It’s a services market, and its behavior is quite different to most of the conventional models.

Employment figures underpin major capital in domestic economics, including the manufacturing, auto, consumer goods, retail and housing sectors. The recovery has been slow, but there are signs that the New Economy business models are taking hold, supporting more trade and professional services. That’s a breeze which will definitely grow into a gale in the US. All global economies are taking up the new business approach, and many are taking big market shares. 

Housing

The US housing market was effectively hit by a dinosaur-killing asteroid in 2008. Confidence in the market has been propped up by low prices, not hype, and that’s been an almost unreadable factor in market analysis. Nobody, understandably, wants to make predictions in an environment where figures like 3 million more foreclosures are expected in 2011.

This has been a very ill wind, which will eventually blow a hurricane of good for some investors. There’s only one truly obvious factor involved in the current US housing sector- The current big surge in investment in foreclosures and bargain basement properties is the forerunner of an eventual upsurge.

From the market’s point of view, an upswing in the property sector translates into an upswing across the board, from finance to construction materials. This is a gigantic capital market, and when it comes back onstream, the US recovery will be truly underway.

Politics and the US budget

The market has naturally been highly sensitive to US government issues. This particular hurricane has arguably done more damage to market confidence than anything else. Big budget cuts, even to defense, have been foreshadowed as the US battles its huge national debt. 

The good news is that nations can’t be governed purely by self-serving verbosity. Revenue must become more than a football. Clear fiscal policies must be in place. These breezes are still blowing in multiple directions, but the inevitable outcome must be a solid blast of fresh air to restart America. When that happens, the markets will respond rapidly.

Best practice for investors is therefore to position for growth, while avoiding risk. There may not be too many “get rich quick” options on the board now, but they will be there, so get ready.