Word: marketeers
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Economist David Rosenberg earned his way onto Institutional Investor's All-America Research Team for the past four years by making smart market calls for clients at Merrill Lynch. Now the chief economist and strategist at Gluskin Sheff, a Toronto-based wealth-management firm, Rosenberg tells TIME contributing editor John Curran why he thinks this market rally is headed for trouble...
...TIME: We've got a pretty good market rally; consumer confidence is up. What's not to like? Rosenberg: There's absolutely nothing wrong with consumer confidence going up, but it's really a matter of watching what consumers are doing as opposed to what they're saying. If you take a look at the retail sales data over the past couple of months, it has moved back down. It looks like consumer spending, after a bit of an increase in the first quarter - mostly just bargain-hunting in January - is also relapsing in the second quarter...
...Index of Leading Economic Indicators is also pointing to better times ahead. What's interesting is that almost half the increase in the leading indicators was from the stock market. So people look at the leading indicators and say, "I gotta buy stocks." And yet the stock market is one of the 10 leading indicators, so it almost becomes a self-perpetuating development. Here's another thing to know about the index of leading indicators: in the past, the upturn in this index precedes the economy's upturn by as much as 12 months. So maybe it's telling...
...economy improve? There's no question that we are, if not in the third quarter, then the fourth quarter of this recession football game. But what sort of recovery are we going to get? That's an important question, because the history books tell us that a sustainable bull market in the aftermath of a recession traditionally requires 4% real growth in the economy and 20% growth in corporate profits. But I don't think we are headed for such a strong recovery...
...Does that suggest a trading-range market as an anemic recovery unfolds? Bingo. It will be a trading-range market characterized by volatility. It will be an environment that will benefit active investment managers as opposed to passive investors. If you are in the "buy and hold" mentality, this is not a market...