Investors Are Still Not Believers
The market is still showing tentativeness, as volume remains light and bond buying is still high on investors’ minds. Recent numbers show the ratio of money flowing into U.S. bonds compared to equities remains quite high. Since this has been going on for some time, one might think “bubble,” but, apparently, investors do not see it this way. The bond buying seems to reflect a certain apprehension about the state of the world, the global economy, and, perhaps, the sustainability of the U.S. economy’s current trend toward defying economists’ predictions. Recent U.S economic data on all fronts has been relatively strong. Where one sees bubble, another sees safe haven, or so it seems, and there just might be some reason for that thinking.
Even though some investment money is now flowing back into Europe, the issues there remain far from resolved. True, Greece is cobbling together its fiscal house with severe austerity measures, legislation that demands fiscal restraint, and agreement with its private creditors that will allow it to default on some $130 billion in debt. Yet, Portugal remains a potential Greece, as does Spain, a much larger economy, which would produce a larger, more intractable economic problem if it were to follow the same path as Greece. Ireland and Italy appear relatively “safe” for now.
Even though 25 of 27 European countries have now ratified the new, stricter, EU economic accord and the European Central Bank has twice now loaned European banks over one-trillion dollars in low-interest, 3-year loans, the fact remains that the last two years of constant struggle with the debt issue has reduced business and consumer confidence. This has pushed the EU back into recession, mild though it may be. With that struggle still ongoing, it remains to be seen if confidence will return strongly enough to lift Europe out of its economic doldrums any time soon.
And then there is Iran. The political and ideological instability of that country, a country that provides most of Europe’s oil, is sending the price of oil ever higher, which completes the circle back to investors’ apprehension about the sustainability of recent U.S. economic momentum. As oil prices push higher, gas prices follow, and that saps the spending power of the consumer. A rapid rise in oil and gas prices occurred last winter as well, and, along with some other harsh factors, it helped break the then strong trend toward economic recovery.
Finally, the somewhat quiet issue of the U.S. debt could well be a factor in the thinking of investors. Last year’s political circus regarding the raising of the U.S. debt ceiling did little to shake investors’ confidence in the bond market, but it did produce a near panic in the equities market. In July and August of last year, the market suffered harshly from the political debate that ended with the first ever reduction in the U.S. credit rating and the raising of the debt ceiling. Will the same scenario play out this summer, as the very same issue rises to the surface again? Perhaps investors are thinking this might be the case.
All of this has produced a trader’s market, even with the CBOE Volatility Index sitting in the teens. Given that the environment described above probably will not change in the near term, a trader’s market it will remain. As always, though, finding those short-term trading opportunities is the issue. VantagePoint Intermarket Analysis software specializes in finding opportunities in a 1-3 day window, a window opened right now, a window that looks to remain open for some time to come.
Best Wishes,
Lou Mendelsohn
