Think about your comments about what analysts are saying -
>> Analysts have been shifting all their projected growth out into
>> the second half of the year, leaving full year estimates for a
>> lot of companies pretty much unchanged.
Do you really think that earnings will suddenly explode from
nothing to double per quarter in the 2nd half, making everything
OK for the year? I think this is a farce, and what analysts are
really doing is coming up with an excuse to continue to sell the
public on stocks. The pros can read between the lines, and I bet
they are selling every rally at this stage because they know that
with earnings so weak in the first half, things will be slightly up
in the 2nd half at best. I'm thinking independent pros here, not
mutual fund managers. Young fund managers may actually believe
some of the press releases, but not the twice-burned guys who are
investing their own $$$$$.
>> I don't think it will be Fed rate hikes that will bring this
>> market down, but rather weak earnings.
Agreed. Once the majority of investors are in on what the 2nd half
is really going to be like, the party is over. However, I can see
one scenario in which the Fed rate hikes could be the trigger. In
my opinion any rate hike could be the last straw in Asia. This is
because a rate hike will strengthen the dollar, making US assets
even more valuable, short term. This puts more pressure on Asian
economies because this makes a capital flight problem worse.
Once a bad situation gets out of hand crazy things can happen that
you don't think could happen or should happen. We could see strong
anti-American sentiment develop and spread like wildfire in those
countries. Imagine several economies in the shape of Indonesia which
a lot of angry people who suddenly decide that US banks are to blame
for everything. If you are not a US citizen and are deeply hurting
financially, then I think it's an easy step to blame the US as a
whole. The political situation is potentially so explosive that I
don't even want to think about it. Indonesia could be on the brink
of this scenario right now.
In this situation Asia would bring down earnings, so it still means
that weak earnings are the culprit in a sense, but the real trigger
could actually be interest rates doing the zig when they need to
zag to keep the global economy alive. Also, reduced earnings might
then be the least of our problems. Keep in mind this is the worst
that I could imagine, even in my most pessimistic mood. However,
we are at the most extreme evaluations is history, so I say downside
risk is very high even ignoring all the worst-case scenarios.
All of the above paragraph is pure speculation on my part, so take
it with all the caveats - IMHO, etc.
Ed Miller |
