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Courtesy of Walter Gault, Communications Editor, Sabrient
It is fairly clear that what the market wants is a solution, or more likely, an entire truckload of solutions, to the issues that have polarized the globe. I hope you’ve noticed that the market passionately hates uncertainty! The market’s behavior of the last few weeks speaks to this attitude.
Bernanke says he has more solutions for our struggling economy, but last week, he didn’t tell us what they are or when he will implement them.
The European solutions are many and varied (an FDIC type banking solution, a Eurozone common bond guarantee, a bailout of Spanish banks, or a Greek government that acts as a government); we remain hopeful for progress at this week’s European Summit.
The market wants an answer to China’s fuzzy growth. Is it slowing more than we thought? Are regional Chinese utilities that report continued growth pulling the coal over our eyes in light of their giant hoards? Did they really sell lots of electricity or didn’t they?
How about the Middle East? Has Egypt’s election solved anything in Egypt? Will Syria self-destruct? Will Israel bomb Iran or will rationality prevail? What will happen in Pakistan, Afghanistan, and India?
How about the Americas? Will Brazil continue to slow? Will Mexico continue to grow? And if so, will the drug cartels or the economy drive growth?
All of these problems have proposed solutions. The problem is nobody wants to agree on one. For examples, check out last week’s G20 and FOMC meetings, and this week’s European summit. Will any of them agree on steps to take now?
We don’t need to solve all the problems immediately, nor could we. But surely we can make more tangible progress on a couple. And if we can, the market is ready.
Stock valuations are quickly approaching the exceptional levels that were available in March of 2009. If you didn’t know any better, you’d think some of the good stocks had been left for dead on the side of the road. Seagate Technology (STX) is selling at less than three times downwardly-adjusted forward earnings, for a 36% 5-year EPS growth rate. I could go on and on. The point is that there are no reasonable alternatives to equities. Ten-year treasuries are approaching 1.5%; bond prices…
