The New Investment Manifesto

July 17th, 2009 by

CA Editors

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Green Shoots Not a Phrase Used by Those in Business

July 11th, 2009 by

James Cullen

When Fed Chairman Ben Bernanke coined the term “green shoots” of recovery during his 60 Minutes interview, it became entwined with the improbable – both in terms of timing and magnitude – rally taking place in the stock market. The S&P 500 went from a low of 666 to peak over 950, and green shoots abounded. Prices have slid back since then, because the perception of green shoots hasn’t matched with the reality of nobody involved in business seeing the same thing.

On DailyFinance, I devote time to tracking what influential people in business and finance are saying about the markets, and I haven’t heard any of the outright optimism that a 40% rally is predicated off of. Warren Buffett said that the economy is still in shambles, Mohamed El-Erian of PIMCO said that low interest rates will be necessary “for a long time” to heal the economy, and American Express CEO Ken Chenault hoped for growth resuming in the second half of 2010. Elsewhere, the KB Home (KBH) conference call and other data showed no bottom is in for housing, and the Homebuilders ETF (XHB) is down more than 20% from its recent highs.

The predominant view is that business activity has stabilized on a month-over-month basis, but that still means it will be down year-over-year for at least several more quarters. The market pendulum seems to be swinging back to favor this view as opposed to an outright recovery, and many of the leaders that bounced hard are suddenly struggling. Any sort of sustained earnings momentum is going to be a phenomenon down the line, and expectations still look generally high for the second quarter.

Anecdotally, a number of people who told me they were liquidating stock holdings and/or switching to bond funds during the market meltdown have now started wading back into stocks in the last month. The plural of anecdote might not be data, but the extent of the rise and the evaporation of the excessive fear that existed going into March has made bargains much harder to find. My portfolio value is at an all-time high, though I’m now 50% cash and ambivalent as to what to do – a topic I’ll have to look at another time.