No, not heard of...?
Some of you might be thinking that its practically impossible, since if unemployment level is rising, then in a scenario like this how can the population afford all these luxuries.
But, in reality its TRUE.. Welcome to the biggest economy of the world, yes the United States of America.
This is precisely the case happening in US over the last one year period or so. What is happening is that the stimulus plan in America is letting so many of its people live "rent free" as they sit in defaulted homes not making a mortgage payment. This savings form not paying the rent allows them to shop and spend, and support the falling consumption driven American society.
Even the home foreclosures are on a rise, hence despite the foreclosures on a roll and the rising unemployment the people are striving in consumption based on Credit Cards and Auto Loans. So, the because of the government stimulus, the already indebted American Economy is consuming more by taking more and more loan.
People are not paying their mortgages because the Government is doing this-- as much as 15% of them are in trouble or just being defaulted on -- but they are keeping the cards and keeping the cars so that they can go out, lead their lives and shop like the old day.
So, once the Government starts withdrawing the stimulus package, the way Indian or Chinese or Australian government has done, the consumption, which is the back bone of US economy will break and the recession will loom again.
Hence, I would say that the fundamentals are not as good as it looks, especially in the developed world. The crisis as I had mentioned earlier has started to mount of other European nations and the markets have started to show signs of weakness.
So, remain cautious and invest in defensives. One such defensive stocks we are currently working on is Novartis. I will come up soon with a report on the same.
Happy Investing...
Rahul, I would like to know, how bad will the contagion effect be, in case the European economies fail? Is the US (and the rest of the world) really that badly coupled with Europe?? And what is the probability of the European crisis, cuz as I see it, European crisis is the sovereign form of the Lehman Brothers going down!! Your take Rahul??
ReplyDeleteCould you share of the total trades with PIIGS and its effects in event of any soverign default?
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Sudhir Bharadia
@rahul The stimulus package has been very differential effect on the US economy..the fundamentals of Economics are royally violated in US..The GDP figures of Us is dismal..Lack of national saving and creation of employment are the major issues..Stimulus cant solve a structural economic problem...
ReplyDelete@piyush i doubt of an European Crisis...simply becoz the GDP figures..and the ratio of national saving-consumption is pretty good in most of the European countries... The fundamental of the these economies are sound..