Greece, U.S. corporate earnings, the price of oil, the affect of the manipulated Chinese yuan, and developing financial regulation all have something in common – movement in the global equity markets. Although broad market movement is bullish, it is sometimes difficult see why when the above are fodder for the talking heads. It is even more difficult when supposedly reputable analysts come out and predict the S&P 500 will be at 400 or less by the end of the year.
Greece will kill the Euro, and then the Eurozone. U.S. corporate earnings are good, but … the price of oil will rise to over $100 per barrel creating inflation that will kill the nascent recovery. China will not let the yuan float, thus we have a trade imbalance that will eventually wreck our job base here in America. Financial regulation will kill the markets.
All of the above are concerns, but not one of them contains within it the seeds of destruction for the budding recovery. In fact, if one were to look deeper into the individual concerns, one would see that all of them are either over-hyped or are on the verge of correcting.
Take Greece and China for example. Two months ago, when Greece’s financial woes became red meat for the talking heads, the predictions of the euro collapse were rampant. Naturally, the trade became the U.S. dollar/euro – up went the dollar, down went the euro. Well, today, the U.S. dollar sits at 1.33, give or take, and the U.S. dollar index, which has risen recently, has turned flat. So much for the collapse, especially since it is more evident today that Greece will get its bailout, and it will get it soon. China, which does have a manipulated currency that protects its economy and creates an unfair playing field for all the other economies of the world, has started talking about letting the yuan appreciate to some degree. They will do this because it in their best interest to do so. Their economy is overheating and letting the yuan appreciate will cool it down. As well, it cracks open the door to greater imports into the Chinese economy, which is rapidly building the largest middle-class, consumer base in the world. Take a look at GM and what China has done for that company.
A month ago, predictions of oil blasting through $90 into the $100 range were ubiquitous. Well, in the last two weeks, oil has had trouble getting above $85. At this moment, oil is not an issue for the U.S economic recovery.
So, now the latest boogey man is pending financial regulation. The talking heads are all pointing out specific aspects of the pending legislation that will kill the market. If derivatives are removed from the banks, financial markets will collapse. If the Volker rule is put into effect, the financial, markets will collapse. If hedge funds are regulated that will end liquidity in the markets, and on and on ad nauseum. We have seen financial regulations before, and we will see them again, and if anything, it will add to a sense of confidence in the markets, just as they have done since the 1930s.
As to corporate earnings, no matter how much blathering fills the airwaves and the Internet about this or that regarding the earnings, strong corporate earnings are the driver of the bullish market. The reason is simple. Most everyone sees what the corporate earning represent – a strong U.S. economic recovery. In fact, most everyone is ignoring the blathering talking heads and doing what good traders/investors do – look at the technical and the fundamentals to make their trading choices. So then, I ask, if no one is listening, when will the blathering end?
