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Are we heading to recession part II?

November 10th, 2009 · No Comments

The recent rising U.S. stock market does NOT make sense to me. stock is trading at $130.15/share this afternoon. Its P/E ratio is 76.74. Google’s P/E ratio is 36.56. Apple’s P/E ratio is 32.28. Given Amazon’s thin margin, its current stock price is absurd. It’s the kind of number we saw during the last great Internet bubble.

The national unemployment rate is 10.2%. And the broader measure of unemployment rate stands at 17.5%. In the past 30 days, we have seen layoffs from Electronic Art (3,000), United Online (71+), Microsoft (800), RealNetworks (70), Sun (3,000), etc. I’m getting busy again to update Great Depression 2.0 Layoff Tracker. Job creation is absolutely crucial for economic recovery. It’s not getting better at all.

Nouriel Roubini, an economist and NYU professor who correctly predicted the current economic crisis, warned that Mother of Carry Trades Faces an Inevitable Bust. Roubini recently said:

"Eventually there’s going to be an end to this carry trade. When that snapback of the dollar is going occur it’s not going to be 2 percent or 3 percent, it’s going to be more like 25 or 20 percent. And then everybody will have to close their shorts on the dollar, they’ll have to sell these risky assets across the world and you could have this huge asset bubble going into an asset bust." 

Golden Sachs is looking to buy millions of dollars of tax credits from government controlled mortgage giant Fannie Mae. Warren Buffet is joining Goldman in bid for Fannie Mae Tax Credits. So, the taxpayer bailed out the banks. Now, banks are trying to save more money by "bailing out" Fannie Mae, which is controlled by the government. Who is at short end of all of these? Taxpayers.

I don’t want to sound like a pessimist. But, I’m a realist. Our own employment, security, personal finance and family well-being have a lot to do with the overall economic environment.

I want to share with you my concerns. The economic crisis is far from over. It’s not time to relax. Save. Diversify your income. Hold onto your job even if you don’t like it. Prepare for a rainy day.

I wish I’m wrong. But, until then, I’m working my tail off. 🙂

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Tags: Beat Recession · Personal Finance

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