Government Spending Drove the Recent Stock Market Growth

Government Spending Drove the Recent Stock Market Growth


Looking at the last 3 stock market uptrend’s we see the following:

A) 1996 – 2000: The time of the .COM Boom. All known and explained

B) 2003 – 2007 The time of world economic growth boosted mainly by Asia/Chinas development

C) 2008 – today Markets are driven by massive government/deficit spending allowing for:

• Solid corporate earnings

• High unemployment

What is going to come next?

Let us first describe some key market facts:

The $600 billion of government money will flow into the market over the next 6 month. The stock market already advanced this action and so there will maybe be another little move to the upside, but not a massive one.

The technology companies who were the driver of the stock market growth: AAPL, NFLX, GOOG, AMZN are partially getting under pressure where to find new market places for their offering:

- How many more iPhones can you sell. So where is the next wave for Apple Computer.

- How many move videos can you consume while you have the internet, Xbox and movie on demand by the cable and satellite company. So why should Netflix grow?

- Google is getting under pressure by Facebook targeting the massive advertisement incomes Google made and with that one of the most overweight internet champions is having an interesting time ahead of them.

By having free money and being able to sell bad mortgages back to the government, Banks are comfortable in not lending. They enjoy a high margins with the loans they get serviced. Mature markets like Banking usually have a tendency for consolidation and with that big banks will not grow through business expansion, but acquisitions of local and regional banks. By banks not lending, growth through consumer and corporate deficit spending is limited.

Now we draw our conclusion:

We will enter a time of a sideways trend with high volatility, ending potentially in a bigger market revision, by all current growth being achieved through government spending that is not backed by the economy.

When we look at the VIX (Volatility Index)

We see a typical triangular pattern, which indicated a potential breakout in the first quarter of 2011.

As we know the VIX is inverse to the stock market and the breakout could be twofold:

- To the upside, with a downside revision of the stock market.

- To the downside, entering a sideways or growth market.

Looking at the trend over the last 60 months we would rather lean to a downside revision of the stock market with a rising VIX after the first quarter of 2011.

Hence we recommend to learn how to implement bearish and sideways market strategies to not get eaten up in the times ahead of us. NeverLossTrading.com as a premier institution for investor education has a fantastic program to prepare you not to lose but benefit in all market directions: up, down, sideways.

Good Trading,

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