I went out for about 15 minutes to reset the timer on my front garden. When I returned, the market had taken a precipitous dip, some 55 points on the Dow and six points on the S&P. What happened while I was away?
- U.S. stocks fall, after the Standard & Poor’s 500 Index extended a record, as earnings at Amazon.com and Visa missed estimates and durable goods data fueled concern that corporate investment remains stop-and-go.
Is that a new fear I see on the horizon – “corporate investment remains stop and go”? Now, where the heck did that come from? Granted, the big jump in durable goods orders was the military buying more planes, but still, when transportation is stripped out, the gauge stills show a sizeable increase over May. Nevertheless, the metric, like so many other government economic metric is subject to revision.
What is more intriguing to me this morning is the price of oil. Has anyone else noticed how rock solid it has been for some time now?
- If wars, coups and conflicts in energy-critical hotspots can’t even excite oil prices for more than a few days, then it’s hard to see how the wider economic and financial universe would be materially affected.
Why have oil prices have remained rather steady in the face of all the geopolitical tension in the oil hotspots of the world? Shouldn’t they be busting out? Well, as you might have guessed, I have a thought on this, a simple thought as always, but, perhaps a compelling one as well.
What if it is difficult for oil prices to go higher? What if they are maxed out, relative to supply and demand? What if this is the case because speculators don’t have enough juice anymore to push prices higher? And what if the Dodd-Frank regulations, which establish limits on speculative positions in 28 physical commodity futures contracts, including oil, is the reason speculators can’t push prices too far beyond supply and demand? Just thinking out loud here. It does seem odd, though, that the oil prices have remained so steady for so long.
- As for any dash to “safe” assets such as U.S. Treasury bonds, dollars, gold or Swiss francs, 10-year T-bond yields are down 3 basis points this month but those on two-year paper are up by the same.
The above seems odd, as well, given, the geopolitical tensions and the persistent calls for a market correction, the lack of enthusiasm for the global economic picture, and the continued suggestion by many that the market has formed a bubble and is about to pop.
- Bubbles don’t develop and/or pop when EVERYONE is looking for them. By definition, bubbles become an emotional thing. Investors clamor for the hot and almost no one “sees” a problem.
Right now, everyone is looking for a problem, a reason for the market to go bust. It seems implausible that this bull market is still going on, even if it is not the longest bull market in recent history.
- From August 12, 1982, when famed Salomon Bros. economist Henry Kaufman signaled the descent of interest rates, the Dow powered ahead from a low of 776.92(can you even remember them days?) to August, 1987 when the Dow hit a peak of 2,722.42.
The bull market of today is similar to the 1980s bull market in that it took time for the economy to rebound from the 1970s economic fiasco. Granted, it was also followed by the crash of 1987, but that was similar as well, in that the 1980s gave rise to a housing bubble and the US had another financial crisis, i.e. the Savings and Loan debacle. Those two things led to the next big recession in the early 1990s, which then led to …
- Nothing equals the greatest, longest bull market that began on October 11, 1990 at Dow 2365.10 and climaxed almost a decade later on January 1 believe it or not, 11,722.98.
That, my friends, is over a huge return, much larger than today’s five-year run. Granted, that bull market crashed in 2000, which led to another housing bubble and yet another financial crisis in 2008. This time, though, the financial crisis and coinciding recession rivaled the Banking Crisis of 1993 and the Great Depression, and that fact resulted in far more damage to the US economy, consumer confidence, and investor confidence than did the crash of 2000.
One other thing marked the greatest bull market ever – technological transformation that changed the global economy. Yup, you guessed it. We are in another, perhaps greater technological transformation right now, so, by my logic, the market still has a ways to go before it goes bust again.
Trade in the day; invest in your life …
