Golden Economy or Fools Gold - Has The US Market Pushed Ahead Too Far?
As the US stock market hits a new all time of over 13,000 many are starting to question the real reasons for the rise - a Golden Economy or Fools Gold?
While many analysts are pointing towards to encouraging state of the US economy, behind the scenes the situation is a little less encouraging with personal savings at all time lows, an increase in the number of mortgage defaults and house prices stagnating (ahead of a fall?).
Quite how the market can hit a new all time high against such a background is puzzling, but maybe we need to look at the corporate finance market.
As with the UK, the US markets have seen a number of high profile takeovers with worldwide funding at a relative low. The “cheap funding†to finance such deals will not last for ever as interest rates continue to tick higher, so is it really a case of “making hay while the sunshines�
As funding costs edge upwards, more and more deals will fall off the “takeover radar†which will slowly resulting in takeover premiums disappearing from share prices - where will that leave US investors?
There is no doubt that the value of many companies on the stockmarket at the moment have been boosted by this “takeover premium†with expectations of corporate activity. Once the reality of increased interest rates, a falling housing market and high levels of personal debt begin to hit home, the “irrational exuberance” of investors may well disappear very quickly!
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