There are 2 very important indicators which I like to track to see where the World Economies are moving. Stock Markets are just an Indicator of the Real Economic Activities. They may or may not reflect the actual underlying strength or weakness of the economy. They may run up ahead of the fundamentals based on hope. A hope of a better future.
Job Growth and the Housing Market are key barometers of how well a country is doing. why jobs? Jobs offer employment to people giving them money to spend.Most of the World economies are driven by consumer spending. If the consumer has no money to splurge who will buy luxury items? Housing markets indicate how well the real economy is doing in terms of construction activity, steel consumptions, again jobs for people, the spending power of the people.
Lets take a look at America. The Case-Shiller Index is a benchmark Index for housing. The 20 city index is about 30 pc down from its peak and is at 2003 levels. As per them, home prices do not show any sustained recovery. If Housing has not recovered in spite of the stimulus and waivers given by Obama, US still remains in a hole.
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Lets look at the jobs data.
The unemployment rages between 9-10 pc officially.Now this data is on lower end of the estimates. Why? It does not include people who have stopped looking for jobs or had to take up part time employment since they cannot find full time jobs. Real unemployed may well be twice of the estimates about 20 pc.
Now, the Dow is 10200 levels. Where was it in late 2003? The Dow was at 9300 with an unemployment rate of 6.3 %. The economy had just bottomed out and was beginning the boom years.
Unless Housing improves and the market improves, the Dow is overpriced right now. A good correction of 2000 points should be on the cards.
As for our markets, the dollar index weakened to 83 odd levels. It should run into support areas at 82-83 which would be a reversal point.Also, FIIs were dormant during the week, except a huge purchase on Friday of 1100 crores.