Economists are engaged in a heated debate about whether we are in "full recovery" mode or simply in yet another speculative bubble in stocks. While there is clearly no empirical answer to that question, the answer is..."yes, and yes."
Particular
demographics, such as technology and healthcare, are in a cyclical advance,
likely to continue for decades. On the
other hand, where confusion and dissipation of customer demand are at their
greatest, the influence of cyclical/secular trend advances is weakening. Unfortunately,
the drag on the economy by consumer inactivity far outweighs any biases
attached to stock performance in the past two years by traders and speculators.
That is why it appears as if we are
sitting on the edge of a disbelieving precipice which commands our attention
immediately.
There
is reason to be dubious about the fantastic equity numbers, but not necessarily
to pick a fight with them. Ride the
wave, for sure, but be careful to apply strict scientific analysis to what
appears to be a once in a generation outcome.
There
are trillions of dollars still on the sidelines, mostly in corporate
coffers. No one wants a war between
government and the private sector, but will it take taxation, or an act of
Congress, to part with those resources? While
it's unlikely that one can beat the private sector into submission, the "public"
waits eagerly for capital investment in projects that benefit them, not the benefactors
themselves. Immobilizing the wealthy
only antagonizes them, but coddling the "haves" for the sake of
politics or profit only alienates the 99% who "have less".
In
a sense, the markets are a didactic struggle between moral persuasion and
uber-wealth. When economies break down
into rioting, terrorism, or civil war, such as in the Middle East, you have run
out of fiscal and monetary solutions to abate the crises.
Not
in one day
To
be sure, these are complex issues, morality and money. It didn't take one policy, one political
leader, or one nation to initiate global economic inequality, nor might it take
one person, or one election to remediate it.
On the other hand, each of us plays a role, through our vote, our
pocketbook, our choices, to build the emotional firepower to bring a cause and
effect response to what ails us.
Past
actions, while relevant, are less instructive than what it is we choose to do
in the future.
Globalism...interdependence...is real and important, whether the topic
is politics, economics, or morality.
Bottom-line profits derive as much from the function of nations
thousands of miles away as they do from local neighborhoods and customers around
the corner.
To
be clear, I am quite optimistic about the direction both of the markets and the
global economy. Statistically, for
example, my data are closer to "bullishness" than at any time in the
previous decade. But I am concerned that
many of us are grudgingly being pulled along for the ride, devoid of
enthusiasm, hope, and expectations about the future. Obviously we need to address the depths of
concern of our fellow citizens and turn them into the engine of fertile
opportunities. To do so requires time,
however.
So
just what is the economy able to tell us today about tomorrow? For one, we are closer to the beginning of a new secular up-cycle than
being at the end of the last
recession. Government stimulus is
exhausted; the heavy lifting must begin now.
While
growth is currently inhibited by diminished consumer demand, its effects might
be also to limit the upside range of stock valuations. As an earnings-driven analyst, I see a
preponderance of evidence indicating growth opportunity in equities, but
perhaps with slower acceleration patterns.
Long term systemic pressures from "resistance" patterns (such
as overhead supply and diminished buying enthusiasm) are within range right
now.
Be
grateful for the past two years' performance, hopeful for the next two, and
cautious about "betting it all" on one more run of the dice.
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