Darrel- Non- inflationary growth and strong economy are the twin engines that are pushing this market forward. You minus out one element of strong economy and you will see that we will be facing falling corporate profits. To keep this DOW moving towards higher target we need along with low yields on bonds, we need strong capacity utilization, industrial manufacturing, key indicators and a strong consumer confidence. If Us has to carry the weight of 'global economic cross' than nothing better then strong legs, some lead is more than welcome. For me the sell off will be much more steeper if economy shows signs of slow down otherwise we shall be alright, we may see some test of lower supports but the supports shall hold.
Lower bond yields alone will not be useful if these yields are only responding to falling prices. Japan has very low bond yields but who wants to invest in a bond where economy is hit by recession bordering deflation, low interest rates is not a ticket to market exuberance. It is low interest rates in a setting that I prefer, US is one example and UK is other where strong consumer confidence compliments corporate profits, but strong productivity gains and competitive niche has made these economies envy of Japan and other OECD economies. In my opinion we are now very evenly poised we need to seek evidence of strong growth more so in face of deeper then expected recession in ASEA.
I would like to be watching for medium term impact of this second phase of selling, I have absolutely no doubt that 2 years from now we will look back and term this period as one great opportunity but I worry more about the interim phase. I want before I decide to go for that 11000 target every possible explanation to see that we will not hit 6980 before that big run.
I have always believed that US market is driven by need to have continuation of low unemployment numbers and moderate increase in hourly earnings. Although, this has periodically led to even severe drops but these sell off always have been opportunities as the drops were unsustainable, in present circumstances in view of ASEAN slow down I would like the US economy to show a little more strength instead of slowing down.
As a haven of quality capital any sell off can lead to a very major realignment. With Global markets in doldrums and capital escaping from these markets we need US and Europe corporate to show some good direction for future increase in profits. This is not possible if we start domestic local growth faltering.
In a economic triangular world forces Japan/ASEA Europe and US are three most important dominant players, it is US that is leading the way. What worries me slightly is the prolongation of crisis in ASEA and Yen depreciation which may leads to Chinese problems and that may aggravate further the existing ASEA currency crisis.
Now that is not the whole problem, the main threats I see to the markets come from failure of major developing economies due to failing markets. The contagion in phase two if Japan continues its export led economic arrogance can get out of hand and spread to Latin America and Russia as China goes for devaluation and tries to prop up its falling exports. It is the security angle that is disturbing to me and not the economic angle. As a student of contemporary history I have seen fascism rearing its ugly head from cradle of a economically failed state like Germany. I am not drawing any parallels here but I am watching with greatest interest the decisions to be taken by Japanese, will they finally ditch caution and go for those structural reforms which may cure this lingering problem of 79 trillion yen of bad debt.
In the meantime much as I am interested in Japan I am looking at my dismal science site and watch for signals emanating from US. I would prefer them to be on the stronger side as any structural changes in Japan will have their own delivery and execution pains extending over a much longer period. It would be ideal if we have this strong economy to continue until Japan comes on line. I am demanding too much of fine tuning here but I have full faith in the gurus who happen to be at the helm of affairs. If I know it they are masters of scenario building.
I am sorry for being complex but your question prompted my free romantic mind to just take a walk down the 'Global Avenue' my favorite place for pseudo- intellectual masturbation, the Ave on which I freely think of the destiny of the markets. This Global Ave approach breaks the claustrophobic surroundings of US markets in which I am firmly tied day in day out. |
