Can equities continue to climb wall of worry?
It is tough to distinguish real growth from the effects of government stimulus and the Fed’s quantitative easing. “The economy is not growing very fast. I mean 3.2% GDP on $14 trillion stimulus is pretty pathetic,” says Keith Springer, president of Springer Financial Advisors. “It was enough to prevent another catastrophe on the downside, but the economy has to find equilibrium [and produce real demand].”
Springer says the equilibrium is forming as corporate earnings are rising not as a result of an increase in demand, but because of scaling in production to meet current demand. Jobs, though, are still the heart of the matter.
The result is companies that are producing enough to meet demand with a very productive workforce and access to cheap money. “Companies have laid off people and what they are doing is producing the amount of goods necessary to meet demand. We’re not seeing demand increase. A company that makes a product is only making what they know they can sell and [are] hoarding cash,” Springer says.
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