THURSDAY, MAY 15, 2003 2:06 p.m. EDT
Uncertainties Abound!
Stocks Climb Post-Iraq Wall of Worry
Cumberland Advisors, Inc.
(A Subsidiary of Ryan Beck & Co., Inc.)
614 Landis Ave.
Vineland NJ 08360-8007
(Tel) (800) 257-7013
MAY 14 – Markets climb walls of worries and right now there are many uncertainties facing the stock market.
Will slowing economies like Germany and still failing Japan combine with other shocks (SARS, terrorism) to tip the world into recession?
Can monetary stimulus offset deflationary forces?
In the inflation/deflation tug of war, we see some things in upward price trends (tuition, healthcare, insurance) while the manufacturing sector continues to wallow in its "no pricing power" malaise.
The world's largest economy (United States) faces record trade deficits and a massive current account deficit and a ballooning federal budget deficit. How will these forces coalesce? Where is the dollar headed before its fall is over?
Like Nero in ancient Rome, Congress fiddles in the budget/tax fight. Many participants await the outcome and delay investment until this muddy picture becomes clearer. The waiting adds to the economy's slowdown. Meanwhile, state and local government budgets are deteriorating. The final impact on municipal bonds is not predictable.
The labor/job situation in the U.S. is not healing. This is a jobless and tepid recovery and it looks like it will continue that way for a while. We believe that the unemployment rate is headed higher.
Stocks are rising and the momentum seems to be building. Is this a cyclical bull market within a secular bear market? We think so. Can stocks go higher if it is? Yes. The market could reach 1100 to 1200 on the S& P 500 and still be in a bear market rally according to statistics from Ned Davis Research.
Bond valuation models suggest that the 10-year treasury should be yielding above 5% when the economy finally stabilizes. It is yielding 3.65%. Are we setting markets up for an abrupt and punishing bond sell off like we experienced in 1994? We think so.
These and other issues plague the markets. The outlook is harder than ever and scenario strategies are many and difficult. In my 35 years of managing other people's money as well as my own, I have never seen an array of uncertainty like this one.
-- David R. Kotok |
