I think that the bears have something of an obsession with the major averages and the need for a Kahuna of some dimension--and I think that this clouds their perspective.
Could be, but that doesn't make a bull-case for the market overall. I agree with you, the indexes are masking the damage underneath.
Where I tend to side with Iqbal is in the outlook for the US economy and the stock-market. The general and presumably informed consensus is that the problems in Asia, as long it stays largely confined to SE Asia, is unlikely to impact the US excessively -- other than for certain sectors/companies.
Of course I part with both of you on this issue. I am sure you agree with me that the Asian problems will not be wiped out overnight with one statement from Rubin and another from the Korean Fianance ministry, followed by an IMF bail out. But the markets are acting as if it is the case. Regarding their impact, did you talk to any company in specific? I did. I think the techs are going to be the hardest hit. Cheap labor in dollar terms will not be enough to compensate for the double whammy of price declines and the reduced demand. IMHO.
Now there are several strong arguments that can be made for the bullish case: favorable interest rates, almost non-existent inflation, sentiment that is turning decidedly negative and therefore bullish for the market, stocks that have been beaten down to a point where they represent longer-term value, continued inflow of funds--a secular trend for now, continued profit growth except in sectors that have not been adversely been impacted by the problems in Asia, the quality of earnings, etc . The one major unknown is whether the problems in Asia are likely to remain contained.
1. favorable interest rates: Yes, that is what a major factor in the earnings strength we have seen with several large companies with a lot of debt. [IBM, G, KO, PG.] Not a boom in sales. How far will this lower interest rates take you without much of a boost in sales? Also, you have to consider the fact that companies with profit grown in mid-teens have appreciated in triple digits. How can one make a futher bullish case for most bloated stocks in the S&P?
2. no inflation: so is lack of pricing power for many companies, if not deflation.
3. sentiment is turning decidedly negative? on which planet? I am sure you know better than counting the number of posts on Mohan's thread as your bearish indicator!
4. if you see any long term values, please let me know, I want to by. Seriously!
5. continued inflow of funds: don't count on the staying power of the same american public. The same janata who were buying far east funds with both hands at the beginning of the year {about $14 bil in assets] have taken the money out in Oct, Nov time [now about $7 bil in assets - source WSJ.] Besides, compared to the leverage in system, the fund-inflows are peanuts.
The one major unknown is whether the problems in Asia are likely to remain contained.
Trust Rubin, he says all is well. -g- I am sure the falling yen will make Detriot sweat in the palm. Underneath the current sugercoated surface, supposedly the Japan banks have more than $100 billion bad loans. Not a paltry sum for even the world's second largest economy. What happens to US profits when the Koreans and Japanese of the world try to export their way out to recovery. We are already seeing the effect in DRAM and otehr chip pricing. Ask Micron, ask Texas Instruments!
I also feel that the obsession of the bears that we need to see a significant decline in the averages shows a certain mind-set that clouds their judgement.
You just have to substitute bulls for bears in that line to see things differently.
One more - from a macro-economic point of view, the so called "strong" economy was not entirely driven by end-user demand. This
is also an expansion led boom rather than just end-user demand boom! Without some heads rolling, things will not comeback to "bargain" levels. The survival of the fittest hasn't happened yet. IMHO!
-Mohan |
