Pinocchio President?
By ALAN ABELSON | MORE ARTICLES BY AUTHOR
Obama bashers are at it again. Stocks are sinking under a wave of good news.
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Nothing was more telling about the State of the Union than the contents of Mr. Obama's assessment: shy on boasts of accomplishment, big on promise to set things right. Most of us were already all too aware that the economy was not exactly buoyant and jobs remain frustratingly hard to get. As to his cures for what ails us, as laid out in his speech, it's manifestly uncertain their effect will be more than palliative. For that matter, given the fractious mood in Washington, it could well be they'll never even be put to the test.
STOCKS HAD A DOWNRIGHT MISERABLE week. as a matter of fact, the first month of this brand-new year, despite the odd flare that lifted share prices briefly to 15-month highs, wound up being something of a bummer. The dear old Dow turned in its worst performance since the dark, chilly days of February '09, when equities were in the final throes of the great bear market that laid waste to values without mercy.
A good measure of how sour investor sentiment has suddenly turned is that even the reappointment of Ben Bernanke as head of the Federal Reserve, raising the prospect of zero interest rates as far as the human eye can see, and a whopping rise in last year's final-quarter GDP, failed to revive enthusiasm. So who or what let the air out of the balloon?
After all, for some months now, it has been more than apparent that the dazzling run by stocks (and junk bonds and various and sundry commodities) was being driven by hope, hype and heat (we're a sucker for alliteration) rather than cool, calm and collected expectation for the economy or corporate profits. The remarkable rally that began last March and lifted share prices as much as 70% (and even more in emerging markets) was really a huge sigh of relief by investors that the worst was over.
But that the worst might be over never meant, as the more rabid bulls insisted, it was all wine and roses from here on. Scars inflicted by the recession and the big bear market are still vivid and may take a long while to heal. Housing and small business are sorry cases in point. Yet years' worth of improvement were being merrily discounted in a relatively few months of frenetic market action.
While the market is an anticipatory animal and tends to go overboard both when it's exuberant and when it's depressed, during 2009's brilliant surge the gap between what was likely in prospect and what investors believed was in prospect grew awesomely huge. Something had to give and, seemingly, it finally has.
Disenchantment is hard to measure. And in an investment environment dominated by a trading mentality and, to some significant extent, a day-trading mentality, investors, big and small, can be hot for stocks one moment and hot to get out of them the next.
So it's kind of fruitless to venture how far down this decline will carry or even how long it will last. But it's obviously not an ideal time to go on safari for several months, leaving your portfolio untended.
What strikes us most about the recent action in the market is that, unlike during last year's powerful run when bad news was pretty much shrugged off, good news no longer invariably provides a lift. Until it does and with a decent consistency, you can do a heck of a lot worse than let caution be your guide.
.................http://online.barrons.com/article/SB126481031589737497.html?mod=BOL_hpp_mag |
