Balancing
act
It's impossible to tell
exactly where the line of demarcation exists between the threat of inflation and empiric evidence-based inflation, but the mere suggestion that things are
"heating up" seemed to be enough this month to quash a good deal of
enthusiasm for buying stocks and other financial instruments.
While we infer that
"anecdotal" inflation is already present in our lives (travel,
medicine/medical care, entertainment, housing/mortgages, education, etc.) it
took a few television talking heads and several noted economists speaking about
excessive development and out of control spending to unleash our ire, and make
those sublimated fears become real.
Still, the fact that
investors sometimes can't distinguish between what's happening in the stock
market and long-term trends within the economy is evidence of a perception
chain reaction train wreck that leads to overload volatility across the entire investment
spectrum. The good news is that the
situation is never quite as bad as one describes, and it's never really quite
as good as the optimists might lead you to believe.
Exactly where all this
"bottoms out" is yet to be determined, but if you think all this unpredictability
is the beginning of a serious rout, I believe you are mistaken.
Despite the market's
volatility, there is plenty of good news....perhaps too good(!)....throughout
the financial markets and the economy at large. And therein lies the origin of the next chapter...
Looked
expensive....and it was
Those who steadfastly continue
to create a parallel linkage between financial trading exchanges and data which
supports the economy's growth also point to analogous periods in recent history
such as 1987, 1998, 2000, and 2007 as proof that prosperity leads to
recession! And while each of those
disastrous periods did represent a rupture from the trend which preceded it,
today's analysts point to a falling dollar, rising interest rates, and
enthusiasm gone wild as transactional catalysts for the next great
recession. Indeed, specific events, like
housing bubbles, market exuberance, or hedge fund collapses, point out that
which we already know....that you can't put all your eggs into one basket and
not expect ultimately to pay the price for it.
Such was also the
lesson of dot.com failures a generation ago.
But, as we pointed out in our last missive, the unraveling of one thread is just a starting point, and not sufficient
by itself to unravel the entire economic tapestry. No, for that to occur there has to be a
residue of particulars and mistrust which permeates throughout, a sense that
the bounty was "too good to be true", and that we need punishment and
atonement to settle the score.
Hopefully, that is not the case in today's instance.
So what is it that
takes a docile set of data and transforms it into a menacing period of panic
and chaos? It's a very robust question,
and one which involves underlying fear, mechanical market manipulation,
exploitation by the "haves", and finally a failure to adhere to an
investment discipline for market disorder to occur. In this climate, metaphorical
"blessings" become curses.
What we appreciated yesterday (profit acceleration, e.g.) now represents
the underpinnings for stagnation, unemployment, low growth and market
reversal. The New England Patriots couldn't'
possibly have won the Super Bowl this year because they had already won it
enough!!
Or, as the great Yogi
Berra famously opined, "nobody eats
at that restaurant anymore. It's too
crowded".
Such is the way
investors and analysts turn data on its head to create today's market
volatility and uncertainty. It happens
because we subliminally want it to, or expect it to. But we also need to blame a complacency that
bespeaks an attitude which trivializes success or believes it to be
commonplace. "Stocks couldn't possibly reverse course now that they're doing so
well", it was said.
Each time the market
initiates a trend...both up or down....there are acolytes who gather to say "it's different this time".
I, however, have a
notion that it's not different at all, but exactly the same as we've seen, but everyone
is too preoccupied with the "noise" to know it.
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