The Market Share Strategy the US is taking is favoring investors
The hard sales and sales correction action that occurred at the beginning of last week especially in the developing countries stopped towards the end of the week.
The IMKB went up from 45900 to 47000, $/TL went down from 1,5 to 1,48 and the Dow Jones was at 9600 but closed with over 10000. So what was the factors that made investors start buying again. For some it was because of the production index that was released last week and for others it was because of better then expected orders by factories or constantly developing company balance sheets.
I believe it was neither. The markets did not get the news they were waiting for from the market data but from the FED (US Central Bank) on Wednesday. As the American Central Bank gave the news that they will be extending the time on interest rates that are around 0 to 0.25% they explained that this was due to both economic growth and for other factors.
So in short without any signs of the American labor market showing improvements the interest rate of the U.S. dollar will stay at around the 0 interest level.
This improvement looks unlikely in the near future as according to the non-agricultural employment report released last Friday for the month of October, 190,000 more people have become unemployed making the national unemployment go up to %10,2 (the highest level since 1983). This is bad news for us but for stock markets this news is good.
The reason for this is: There is currently $3.5 trillion dollars in American banks in the forms of deposit accounts and liquid funds which will work at 0% interest. As you can see I am not talking about any fundamental new movements but a hit and run market share strategy. I believe this is the thought behind shares being bought when they fall by only 5% when it has gone up 60% since March.
What should be done? follow the factors that will trigger interest rates to increase. What comes on the top of the list is unemployment. So when the unemployment level is at the current level, America will not increase interest levels to help the markets just like Israel, Australia and Norwich. for investors that do not like the idea of the hit and run strategy my recommendation will be invest in gold.
Although gold is constantly on the news for breaking new records the mentioned figures are nominal figures. If you add inflation, for gold to break it’s record from the 80’s it must be at a price of $2000. Whether this will happen or not is another story, but with interests being so low and so much money being pumped in to the market, gold will have a strong scenario and deserves to be in the portfolio.
Wishing you a profitable week..