From Barron's interesting [partial article to save my a... from the watch dogs] view on Friday's market. Action. Rightly or wrongly Barron's has turned bearish in the last few months. This is concerning. Their view seems to indicate that markets may be headed indeeded for an nevitable bubble. It seems rather stupid that we cannot learn from recent history [i.e. Japan]
the link for the complete piece:
interactive.wsj.com
Friday's action furnished fresh evidence of this incontrovertible truism that stocks can only go up. The market had every excuse in the world -- from the still -- visible smoke left in the wake of the financial firestorms in Southeast Asia to the surprisingly strong November employment report-to backtrack. But it stoutly refused to do so, instead extending its winning streak to six in a row and pushing firmly above 8000.
The job numbers were smashing in themselves and completely out of sight of the cockeyed consensus. In contrast to an anticipated rise of 215,000, payrolls last month shot up by 404,000. Some 44,000 new manufacturing jobs were added, roughly double expectations. Average hourly earnings climbed by a formidable seven cents over the previous month, again a big cut above predictions. And unemployment eased to 4.6%, the lowest in a quarter-century.
That kind of showing, especially when it caught everyone as it did with their forecasts down, normally would have sent bonds into free fall and touched off a rout in the stock market. For those muscular numbers spoke loud and clear to the strength of the economy, loudly and clearly enough, ordinarily, for the Fed to sit up, take notice and even act. And bonds" immediate response was exactly what the script called for.
But stocks, after some initial queasiness, firmed up smartly, and their cool behavior helped steady bonds.
What helped steady them even more was that traffickers in bonds did a kind of double take and concluded that, since present circumstances were anything but ordinary and far from normal, maybe their knee-jerk reaction was a jerky reaction. Somehow the notion penetrated that Mr. Greenspan's big worry at the moment is the growing critical list in Asia and that an interest-rate hike here would be like prescribing a drop or two of cyanide for Korea and Malaysia and the other sickies languishing in intensive care. An anonymous Fed official whispered as much to a stray wire-service reporter early Friday morning, and the bond market duly heaved a sigh of relief.
Equity types not only wised up swiftly to the absurdity of fears that the Fed would pay undue mind to the state of the labor market when it was worried about the state of the world -- particularly with commodity prices generally and gold in particular in a deflationary mode -- but they also spotted the positives in the job figures. The economy, those gains in payrolls and pay suggested strongly, is not about to roll over; so neither is consumer confidence, consumer spending, retail sales nor, most importantly, corporate profits.
This, of course, was in perfect keeping with the long-established investment view that good news is bullish, bad news is bullish and no news is bullish. In other words, the irrational exuberance Mr. Greenspan espied precisely one year and 1,700-odd points ago hasn't changed; Mr. Greenspan has. What had sparked the market's spirited run in the five sessions leading up to Friday and then enabled it to take the employment shock beautifully in stride was the conviction, fed by the massive rescue effort by the IMF and the U.S., that, so far as Southeast Asia went, the worst was over.
In some ways it is. But in other, more profound ways, it isn't. The worst may be over in terms of the financial impact; the currencies and stock markets are likely to stabilize; or at least, further damage will be contained. But the economic impact, and notably the impact on our economy, we submit, has yet to be felt. |
