Last week, the market digested
less-than-spectacular end of quarter data about earnings, interest rates,
valuations, investor sentiment, inflation and exports and took a lurch towards
the downside. Investors and observers
are growing weary over interday advances which recede at the slightest
inference of declining fundamentals.
The market wants growth. It needs sustained positive valuations
because the flow of investment capital requires a secure landscape. If manufacturers slow down making things, or
hiring people, the drip of capital becomes inert. Lately, everyone’s in a bad mood or simply
out of hope.
Declining valuations are not
the cause of poor sentiment, they are an effect of it. Although sometimes difficult to discern or
distinguish, lower equity share prices are tomorrow’s opportunity for bargain
hunters. The big issues are how not to get caught in a secular tsunami,
and when is the bottom actually the “bottom.”
Recall, even in a world of parabolic cycles, there is no bell that goes
off indicating when a turnaround might occur.
We only know these things in hindsight, and, even so, a bottom has to be
a long way in the rearview mirror and confirmed, for us to know it has passed.
Difficult to perceive at its
inception, bottoms do require certain pre-conditions that must be met before a
framework of opportunity might manifest.
Most notably, although “hope” might seem to be lost and “valuations” might
be struggling, someone must be first in
the pool with necessary and/or discretionary funds to turn the tide into
positive territory and to change the paradigm from earnings losers into
earnings winners.
A fair tapestry.
Typically, these kinds of evolutions
are generational, not short term.
Therefore we talk in terms of inflation/disinflation, high growth/low
growth, bull/bear. The pillars of any
turnaround must be enduring, not elusive, and widespread enough that no one, or
nothing, seems excluded from participating.
Recall how in the 1980’s household participation in equities nearly doubled,
mergers and acquisitions flourished, interest rates tumbled while capital
readily flowed into housing. I offer not a political diatribe, but rather a
notion that when all feel as if they can participate in wealth creation, the
markets flourish with investment capital as well as speculative capital. Juxtapose that generational enthusiasm against
today’s secular decline and despair and realize that a trigger to ignite the
markets is not an event, or any one
person, or a time-specific, but rather a broad quilt made up of a series of
events which transforms the psychology of capital over time.
A new paradigm.
In order for this new religion
to take hold it must be marked by a different climate than the greed and
immorality of the culture that got us here.
It is mind-numbing to imagine the decades of profligate spending and
neglect of social equality (healthcare, crime, industrial and corporate
avarice, infrastructure, poverty) that served only to make personal gain and “me-too-ism” the by-law of the generation. A
demographic and secular re-thinking of moral priorities is going to be required
to sustain a bull market in stocks. Against
the tide of rising interest rates, inflation, and rising commodity prices we
are going to have to find a way to manufacture wealth.
Similarly, market analysts
must begin to redefine their methodology to become less dependent upon EBITDA,
valuations, and quarterly reports to find “what works” against a backdrop of
consumer skepticism and a thirst for equity and fairness in the Wild West on
Wall Street.
No comments:
Post a Comment