{"id":2303,"date":"2010-11-16T07:59:57","date_gmt":"2010-11-16T14:59:57","guid":{"rendered":"http:\/\/www.jasonapollovoss.local\/?p=2303"},"modified":"2018-08-17T09:06:22","modified_gmt":"2018-08-17T13:06:22","slug":"sideways-financial-markets-gotcha-down","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2010\/11\/16\/sideways-financial-markets-gotcha-down\/","title":{"rendered":"Sideways financial markets gotcha down?"},"content":{"rendered":"

You might have noticed that the financial markets saw liftoff in the last several months as they powered up to levels not seen since May 2010.\u00a0 At that time there was that mysterious and massive sell off of equity markets caused by that dufus trader entering too many zeroes.\u00a0 While the causes of that event were still being explored the Greek debt crisis unfolded.\u00a0 Then we spent nearly six months spinning our wheels.\u00a0 But then there was a climb back to those levels.<\/span><\/p>\n

Many investment commentators, especially academics, argue that the financial markets accurately price assets based on the news that is available.\u00a0 If we take that as an accurate model (which I don’t) then the fact that financial markets are about where they were in May ought to mean that the level of risks and opportunities in the financial markets is the same as it was then.\u00a0 This simply is not true.\u00a0 So what has changed?<\/span><\/p>\n

Subsequent to May there have been many encouraging economic signs that just weren’t happening then.\u00a0 Among the most important things is that consumers are continuing to spend despite their unemployment situation worries.\u00a0 Another very important thing is that business profitability is strong.\u00a0 Further, that profitability is starting to come not just from expense cutting, but also from actual revenue growth.\u00a0 Additionally, despite the fact that Ireland is having budgetary problems, Europe is a much more stable Union than it was before the Greek debt crisis.\u00a0 This is because they have dealt with some of the structural gaps that existed in their charter.\u00a0 This means that Europe has mechanisms in place that can deal with European problems.<\/span><\/p>\n

I could go on enumerating positives, but my point is that the economy is stronger now than it was then.\u00a0 So why are markets going sideways and not up?\u00a0 I think that there is a general nervousness about:<\/span><\/p>\n

    \n
  1. The mood of the U.S. consumer.\u00a0 Consumer spending remains much lower than its pre-recession levels.\u00a0 My intuition is that it will be many years before it returns to pre-recession levels.\u00a0 This is a somewhat legitimate concern.\u00a0 Because what is really happening is that consumers are finally learning to live within their means.\u00a0 Long-term this is a very, very important thing.<\/span><\/li>\n
  2. The lack of hiring by U.S. businesses.\u00a0 This will change, but again, only very slowly.\u00a0 Until new ideas need new employees to execute them, businesses will not hire.\u00a0 Or until businesses have much higher sales that require more people to fulfill them, businesses will not hire.\u00a0 So unemployment is going to only very slowly improve.\u00a0 This is a legitimate concern and frankly, it is my largest structural concern for the U.S. economy.<\/span><\/li>\n
  3. What is going to happen in Europe?\u00a0 Investors have now turned their attention away from Greece and are focusing on Ireland, another country that gorged itself on cheap debt and that has budgetary problems.\u00a0 This is an illegitimate worry.\u00a0 Ireland is substantially stronger than Greece and for lots of reasons.\u00a0 Their debts as compared to economic output are not nearly as high as are the Greek’s debts.\u00a0 Ireland also has a real economy that produces real goods that create real jobs that creates a real tax base that leads to a stronger fiscal situation.\u00a0 Greece has tourism and subsidies.\u00a0 Etc.<\/span><\/li>\n
  4. What will happen in Washington?\u00a0 Will the new Republican force of will lead to lower taxes, which will lead to more income, which will lead to greater prosperity?\u00a0 Honestly, who cares?\u00a0 As an investor you can never accurately predict what Washington politicians are going to do in advance.\u00a0 Instead, you have to adjust only after legislation is enacted.\u00a0 In other words, paradoxically you have to ignore their gyrations\u00a0until you cannot.\u00a0 So any concern here is illegitimate in my mind.<\/span><\/li>\n
  5. The Holiday shopping season.\u00a0 Investors may be nervous about retail sales this Holiday season.\u00a0 This is a subset of #1 above.\u00a0 For too long the U.S. economy has relied upon a gluttonous U.S. consumer.\u00a0 My expectation is that retail sales will slightly surprise.\u00a0 The basis for my belief is simply a feeling.\u00a0 It just seems to me that people aren’t as grumpy now as they were a year ago.\u00a0 Any concern here is semi-legit.<\/span><\/li>\n<\/ol>\n

    In summary, in my mind we are mostly left with very few legitimate concerns.\u00a0 What do we have then?\u00a0 I think we simply have investor skittishness and malaise left over from the worst equity market performance in 80 years.\u00a0 And this too shall pass.<\/span><\/p>\n

    Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

    You might have noticed that the financial markets saw liftoff in the last several months as they powered up to levels not seen since May 2010.\u00a0 At that time there was that mysterious and massive sell off of equity markets caused by that dufus trader entering too many zeroes.\u00a0 While the causes of that event […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-2303","post","type-post","status-publish","format-standard","hentry","category-the-blog"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/2303","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=2303"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/2303\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=2303"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=2303"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=2303"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}