Are the good times back again?

Its been such a long time that i updated my blog....but the numerous twists taken by financial markets especially stocks have held me in intrigue, like almost all of my brethren analysts. The gloomy and dull period that was 2008 seems like a distant memory now, saying it has faded into oblivion would be an exaggeration.

The performance of global equity markets over the past 6 months since March 6th to be precise, has been all but astonishing, bewildering, astounding (might run out of adjectives here!) No wonder us analysts are in a conundrum whether the recovery in equity markets is a precursor of a recovery in the real economy? This is because stocks trade on expectations while actual grass root developments take place subsequently.

In my view, the present rally can be attributed to massive amounts of liquidity pumped into the global economy by several central banks acting in concert. True, the central banks succeeded in stemming the evident rot in the system during 2008 or did they? Another central theme behind the present rally has been a weakening US Dollar, de facto the world's reserve currency. Is a weaker currency bad for a country?? Not necessarily, a weaker US Dollar helped finance the US trade deficit and also helped lower the deficit by making imports cheaper.

The real economy remains far from a recovery, which can be highlighted by economic data. Unquestionably one of the most significant indicators is the employment number. It seems staggering that the US stock markets have risen about 60% since March '09 even as unemployment has risen to 9.8% the highest since 1983 while employers shed 263000 jobs in September.

Reports of banks increasing mortgage durations to dissuade delinquencies are distorting the real picture. Mortgages still remain a ticking time bomb, commercial real estate and credit cards could be two potential problem areas going ahead. It also remains to be seen whether a withdrawal of fiscal stimuli by central banks impacts market sentiment. A statement by Fed Chairman Ben Bernanke of tightening when the economy recovers, spooked markets particularly commodities.

And what about the Dollar? The sheer unanimity in expecting a weaker US Dollar does not augur well at all. The last time such a thing had happened was in Q4 2007, after which the Dollar rallied sharply through most of 2008. Are we in for an encore...time will tell. In the meanwhile, like most investors i am taking advantage of the opportunity markets have given all of us to smile. Whether the smile remains or turns back into a frown is uncertain... i rather hope not!