Joan, i have given this matter a lot of thought. i actually believe theses stocks are not foretelling anything right now - it is simply a matter of the market's total capitalization having become so huge (Alan Newman showed a total money stock vs. total market cap ratio to be at an historic extreme a few months back) that money by necessity can only support certain sectors. that is the main reason for the narrowing of the market. the recent anemic bounce in the a/d line notwithstanding...
all that said, i have no doubt that the economic cycle is getting very long in the tooth...since it is supported by consumers taking on debt three times faster than their income growth, there is bound to be a severe slowdown down the road. also, as inflation in essentials like rent, energy, house prices, medical insurance is soaring regardless of the no-inflation BS put out by the BLS, demand for non-essentials is bound to wane. i have heard of some anecdotal evidence that weaker credits have begun to engage in amazon-like ponzi schemes with regards to their debt, i.e. they borrow anew to pay off old debt..only now, they borrow at higher rates. not difficult with 3 credit card solicitations a day arriving in the mailbox.
the first cracks in the debt pyramid have begun to appear, with a virtual shutting down of the junk bond market where more bonds have defaulted this year than were issued and the continued strains on credit spreads.
the first clouds on the banking skies have put in an appearance as well, as the recent rash of announcements regarding loan loss reserves attests to.
btw, Howard Hill, one of the fathers of the securitization business and a highly respected figure in fixed income has serious misgivings about these developments as well, and has specifically singled out telecommunications debt which has grown by over $500bn. over the last 12 months alone as one of the shakiest areas going forward. i mention him because the man is certainly not given to hyperbole, or known as a perma bear.
Greenspan tries to outprint all that...in the tradition of John Laws as it were, or the 1920's Fed.
hb |
