Editor's Letter: Rubin's Quick Fix Not Enough to Mend the Market
By Dave Kansas
Editor-in-Chief
6/17/98 8:56 PM ET
SEATTLE -- Even from here, half a world away from the trading canyons of Wall Street, you could hear the speculators screaming.
In one spectacular day, Treasury Secretary Robert Rubin <Picture>delivered a crushing blow to speculators who had spent the last several weeks gearing up for Asian Summer Pain, Part II. The yen's decline had become inexorable, as certain as death, taxes and finicky modems. But as with most things in the markets, when it gets too easy, it's time to start casting about, wondering what might happen next.
We must give Rubin his due, as James J. Cramer did in his column today. But we must also look closely at what contributors David DeRosa and Marc Chandler said today on TheStreet.com. DeRosa reiterated his bearishness on Japan and also outlined how politics, especially politics related to China, played a bigger role in the intervention than did any shift in fundamentals. Chandler also said he believes the dollar's bull-market run is not yet done.
Indeed, despite the brilliance of the Rubin intervention, today's action was nothing more than one mammoth short squeeze. From the yen to tech stocks to the Internet stocks, shorts scrambled like wildebeests across a croc-infested river, trying to evade the tsunami of an unexpected intervention. Stocks shot higher, and all once again felt good on Wall Street after several sessions of uncertain bleeding. The questions investors have to ponder are: Just how sustainable is this one-day move? Will the yen keep gaining? Will the stock market keep rising?
In a word, no. Intel (INTC:Nasdaq), for instance, didn't participate in today's thrill ride. An important bellwether that provides a good window on the strength of personal computer sales, Intel continues to battle low prices and slacking Asian demand. In addition, the Dow, despite its powerful gain, did little more than battle back into the lower end of the its months-old trading range.
More troubling, the second piece of the stock market puzzle, Japan, remains lame. Certainly the Rubin-led intervention will keep speculators at bay, and it may even lift Asian markets briefly. But without some kind of substantive reform out of Japan, it's likely that the Asian market troubles will once again mount in a matter of weeks, perhaps days.
Through the yen dust it's also important to note that the U.S. stock scene is still haunted by several problems, the foremost being rising wages. The General Motors (GM:NYSE) strike, labor unrest at Northwest Airlines (NWAC:Nasdaq) and the continued gains in wages are going to become more pressing, not because of inflation but because of the potential impact on profits. The issue of wages and profits is going to loom larger as the weeks roll forward.
So enjoy the excitement of a masterful intervention. Its good aroma will linger for awhile, but next week, once expirations are over and Japanese malaise comes back into focus, the stock market may not be feeling so ebullient. |
