Can anyone say volatility? A 350-plus or minus swing in three days is, well, volatile. Yesterday, the market dove because of the worries about southern Europe, or so the breathless media told us. Today, we have the news from Europe …
- Eurozone Services PMI: 48.6 vs. consensus 48.3 and last month’s 47.8
- Germany Services PMI: 55.7 vs. consensus 55.3 and last month’s 52.0
- France Services PMI: 43.6 vs. consensus 43.6 and last month’s 45.2
- Italy Services PMI: 43.9 vs. consensus 45.9 and last month’s 45.6
- Spain Services PMI: 44.3 vs. consensus 42.8 and last month’s 42.4
- UK Services PMI: 47.0 vs. consensus 44.1 and last month’s 44.3
And in the US …
- The ISM (Institute of Supply Management) Non-Manufacturing index for January shows the services sector of the economy expanded for a 37th consecutive month.
The latter is same old same old, but the European news is something the market should cheer. Aside from France and Italy, the movement is forward, almost to expansion. I am not sure what the rather huge soccer scandal will do the psyche of the European consumer, but if the consumer can get past that emotional blow, the manufacturers are getting ready to produce …
The fortunes of the fortunetellers reside in their ability to convince enough of us that they know of what they speak. Now, many of the perma-bear types are easily dismissed after predicting incorrectly on a grand scale time and time again (think Roubini and Schiff). On the other end of the spectrum, we can give the perma-bulls more credence because they have been right these last four years, despite the constant barrage of negativity. Let me say this, though – some perma-bulls can be as obnoxious and wrong as some perma-bears. In the middle, however, are solid thinkers that sometimes deliver pearls of market wisdom …
- No matter what efficient market theorists say, there is no “correct” value for assets. No matter how sophisticated a valuation model is, the whims of human nature can render it useless.
The above is about as empirical as it gets when it comes to getting to the essence of market reality. EPS, valuations, P/E and all the rest are merely guidelines fundamentalists use to find trades. In the end, Jim Paulsen is correct – the market value is what the buyer and seller perceive it to be. It is all about perception. Yesterday, the market perceived trouble in Europe. Today, it does not.
Mr. Paulsen’s lucid thought regarding market perception aligns with my own thinking, so, naturally, I connect with his words. Then again, he follows those up with a perma-bull prediction that makes me wonder about his willingness to go so far out on a bullish limb.
- According to Jim Paulsen, chief investment strategist at Wells Capital Management, an improvement in our collective mood is the best thing stocks have going for them and may be enough to take the S&P 500 to as high as 1,700 by the end of the year.
Sure, it is possible, but to say that publicly when 11 months and 200 points stand in the way of fruition suggests fallibility. So, no matter what I believe, I will take his quasi prediction with a grain of salt and I will add to that grain my often used caveat, “all thing being equal.” If Europe keeps moving forward, no expanded war in the Middle East etc. …
As a final thought today, I leave you with a minor rant.
It has been more than five years since the corruption in the ratings agencies was exposed and in that time, the US government has allowed them to continue their irrelevant ratings game. The fact is their money comes from the community they rate, and we clearly saw in the financial crisis (that almost took down the global financial system) that relationship just does not work. It is fundamentally corrupt. Finally, the US government is taking a step, a non-criminal step, mind you, but a step, toward holding at least one of those agencies accountable.
- The U.S. government has launched a civil lawsuit against Standard & Poor’s and parent The McGraw-Hill Companies Inc over mortgage bond ratings, the first federal enforcement action against a credit rating agency over alleged illegal behavior tied to the recent financial crisis.
Hallelujah!
Trade in the day; Invest in your life …
