Market Commentary for the week of June 11, 2012

Snowball.
Each week produces a newer round in global woes, this past being highlighted by Spain and a verbal, if not political, battle over whether austerity trumps spending.  We will not know how the debate concludes, but we can see its effects.  Manufacturing slowed and consumer confidence went with it.  The unknown consequences of a global economic paralysis is, nevertheless, having specific impact upon our markets.  Most notably, the stock market is morphing into a roller coaster ride.

I’ve said for months that the bearish numbers in my data represent a significant inflection from the last major bull cycle (2003-2007) and are intrinsically negative for financial assets.  Thus far, real estate, portfolios, and commodities have decelerated in value worldwide.  With few exceptions, aggregate bearishness pervades the landscape and justifiably reflects future expectations.

Following on the heels of global monetary indicators, domestic jobs growth is slowing.  While this is predominantly a coincidental effect of other factors, its effect, too, over time is to readjust investor’s mindsets about the sustainability of their goals and expectations.  Despite vacillations up and down in the employment data, the unwritten consequence is a mental paralysis that spills over into discretionary spending.

With so many variables in play, I expect our “market recession” as well as our economic pivot downwards to continue.

Who’s standing or sitting?

Global policy makers are attempting to do whatever is necessary to avert both of those predictions.  Europe is trying to tighten its union for the sake of its economic survival.  The debate, of course, is whether to issue Eurobonds and “spend” out of recession, or to allow secular trends to manifest, eventually recalibrating a “new normal” with less risk for the future.  Any step forward, irrespective of one’s political leaning, is a positive.

While it is likely that the volatility in global bourses will continue, the bigger question is to what degree that uncertainty will further erode markets or the prospect of a turnaround.

The U.S. market is likely to see continued decline.  We have crossed from “intermediate reflex rally” to secular bear too many times in the past year.  Decisively, the secular bear trend is winning.

We know, historically, that all “bears” precede new “bulls.”  The question, though, is when.  Japan is still in the throes of a market gone bad because of carelessness and profligate spending.  While I do not subscribe to a 20 year bear for the West, there is a strong likelihood of a technical retracement of the last bull by 40-50%.

Both time and sentiment are working in our favor to find a terminal support value, but it will not occur without a confluence of fundamentals, confidence, and political willpower.  As consumer savings diminish, so too will corporate capital expenditures.  It doesn’t matter any longer whether the chicken or the egg comes first.

Anyone who hoards cash in this market is both wise and greedy.  Certainly we must keep our powder dry.  But if you have the wherewithal to impact social consciousness and well-being, and you don’t, then you risk perpetuating the very thing from which your “rainy day” fund tried to avert.

When the spigot runs dry, the whole farm dries up.