This market was hit with many a worries as we tumbled down from 5048 to 3021 on Comp.., from slower growth momentum to oil prices that would bring commodity inflation back in to business, the European scene of long lines on oil stations did bring the worries of 1970's oil embargo back. The Palestinian saga and the summit of Arab rulers was suppose to bring that oil embargo, so many said that but it was all nothing but politics at its best. The Palestinians were served words and no deeds, the Kuwaits and Saudis had not forgotten their leadership backstabbing in 1990, the political blunder of Arafat than helped the west overcome a possible oil embargo, had Arafat been in the good books. Although I would still analyse it slightly differently as the physical presence of the US in the Gulf pre-empts any such move of oil being tappered down more so in presence of threat from Osama, who thinks US as its enemy for resons of protecting the Sauds the ruling family, so I always had this feeling in my mind that 'Saud's and Sabah's the two swing producers will do no harm to US interests during this new round of self destructing intifada. Now we will see new growls as we shift gears to still strong economy picture being painted by the numbers. Now asa i have prefaced the reasons of this market fall the one core reason has been the deflationary aspects of the slower economic growth in face of rising interest rates. The slower economy would naturally produce lower reves and lower profits that will take markets lower and that would
yield lower cap gains meaning higher defecits more borrowings and more interest rates. The present economic numbers cut through all that non-sense, we have stable growth and although slightly higher wages this more than adequately countered by huge productivity gains, the thing has not change and so woulk be thereaction of the market. I wrote yesterday in reply to PMG post that ..
'Higher unit labour cost' cuts throught the thesis of deflationary scenerio, whereas higher productivity gains cuts the very basis of wage inflation, these two opposite cycles of virtue ( rising incomes with rising productivity is important) are at the heart of the structural change that US economy has see in the last five years.. this thread from very begining is great propenent of the death of inflation and death of realtionship between inflation and low unemployment.
Although government issues lost ground after the release of the employment report as investors zeroed in on the lower-than-expected unemployment report and higher-than-expected hourly earnings, which both point to continued tightness in the labor market. In the backdrop of what we have gone through this is exactly what we need going forward, strong productivity, strong economic growth, lower manufacturing and new jobs in new economy being created, with manufacturing contracting as 48.8 NAPM indicates that we are still seeing lower unemployment, perhaps to avoid confusion what we need is to read a week of economic data in one go, seperate readings add to confusion, I with abenefit of bird's eye view the last week data adds to hope and today's fall in DOW and Nasdaq in my opinion would be a knee jerk reaction to what looks a 'interest rate high' reading for next FOMC on 15th ,, I just don't think that the previous rises are still working and probably this economy has become free of few points here or few points there rises, these recent rises have pull the asset inflation threat out of picture and as such AG is far more settled person however going forward I would like these numbers to be translated to bottom lines in profits..
P.S... I wrote this message as market was heading lower to 3400, as I finished it the urgency is seemingly lost the market is plus 14 on Comp.. |
