Is your neck tired from
snapping back and forth, witnessing the daily “ping pong-ing” of the stock
market, first up and down then left and right?
Well, don’t get used to it because as in any racket sport rallies come
to an end and a winner emerges from one side or the other.
In this case, it appears the
winner, with the strongest serve, is the downside.
Be specific.
Global economic and
fundamental seams are fraying slightly around the edges. Brought about by credit and currency
concerns, equity futures are giving enough indication about trader’s confidence
(or lack thereof) levels, that gaps are being created through which traditional
support is eroding. The pain of lower
stock prices is likely to intensify before it gets better.
Some see these concerns as
“opportunity.” After all, the cheaper a
share of stock becomes the more attractive it is, right? Not always the case. The reasons for an equity price decline are
always more significant to me than the price itself. Additionally the magnitude and velocity, as
well as its duration, of the existing trend can tell you a lot more about the
probability of a company’s performance than fundamentals, alone. Coupled with an overly or exceedingly poor
psychological malaise, the overall prognosis is not great.
To be sure, investing involves
risk. My job is to balance the
expectations of my clients with the realities of market fundamentals, to
navigate through all channels of risk.
Every market experiences bull and bear cycles. Our pessimism about world events today is
distinct counterpoint to our optimism during the last bull run. I expect the bear to reverse course, I just
don’t know the exact date. However,
during any cycle, I expect to find “counter-cyclical” opportunity from amongst
various sectors.
What is clear is that the consumer is hunkering down,
changing habits, and no longer the single engine that can reverse an economic
slide.
Interest rate patterns, stimulus incentives, market manipulation cannot
provide sufficient momentum to change psychological mistrust and fear.
It now appears that a
synchronized global decline is forcing the consumer into hiding, waiting for
policymakers and market makers to come to their rescue. It’s not a good idea to flood the market with
cash and “easy” borrowing, but it seems like all they’ve got to offer.
The long haul.
There are clues, however, that
private capital is awakening. Biotech
research is expanding. Alternative
energy confabs are popping up all round the world. Technology and internet are developing more
rapidly than we can absorb.
Telecommunications, traditional and otherwise, is making yesterday’s
devices obsolete. Lastly, cultivation of
food and water crops is essential to sustain life and prosperity for
underdeveloped nations.
What government can, and
cannot, do is irrelevant to these processes, but to provide the right landscape
and moral persuasion for these endeavors to succeed. Financial
markets must provide the stimulus, momentum, and psychological will to invest
beyond their singular best interest and to venture into capital expenditures
that “make-it-right” for all of us.
These lofty goals
notwithstanding, markets are collectively sending out bad news on a daily
basis. Our vulnerabilities are
showing. To focus simply upon intraday
price movement is a misplaced endeavor.
It’s tough to escape from within a circle.
These problems didn’t occur
overnight, nor will they resolve conveniently much quicker.
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