This time, the sadness is probably coming from companies with a lot of debt. As sovereign nations with unsustainable debt bring up the costs of borrowing, forcing companies with a lot of debt to take additional damage on their balance sheets.
Greece…really cannot fall, can it?
Well, that’s what appears to be. With European banks slowly containing risk, and borrowing costs increasing slowly being taken into account, things may not be as bad as we think.
So, what are we looking for? If you are just looking for when things will be smooth flowing again, I would look at these indicators:
Unemployment, debt, and housing sales. These are indicators that are not as responsive as the stock market. They are dragged along at the tail of the recovery. For swing traders, by the time these indicators swing upwards, there is not much profit left to be made. But for people looking for stable business growth over the next 3-5 years, these indicators are what to look for.
Very simply, employment enables more consumption, which drives the economy, so a low unemployment rate suggests that not only that businesses are hiring, but consumers are able to spend. Low unemployment rates also makes people less worried about losing their jobs, and more likely to spend rather than save.
Less debt, is, well, for all the obvious reasons. I’m not so much referring to sovereign debt, though, that’s a whole other story. Household debt needs to decrease to sustainable rates. Whilst countries have irresponsible borrowing habits, households do too. And because of unemployment and cut wages, people can’t repay their debt as well anymore. When household debt decreases, even if the sovereign debt crisis continues, consumers won’t be hit as hard. Higher borrowing rates due to the sovereign debt storm continually brewing will heavily cripple nations with high household debt. Since America isn’t getting rid of $14.7 trillion dollars of debt in at least 10 years, we have to look for how the consumer can weather sovereign debts driving up borrowing costs.
Finally, housing sales have to rise. It means we have fixed the damages of the ’08 financial crisis. If people are buying homes again, it means they have jobs, money and are able to take out loans. Houses are the largest purchases for consumers, and hence if they are putting down money to buy them again, then we know that consumers are filling up their pockets.
And that’s just my look at a “stabilized” economy in terms of the consumer end.