Saturday morning our fire department had a practice fire that lasted for four and a half hours. I recently became co-assistant fire chief so I was very involved in the whole drill.
I tivo'd all the Fox News shows. When I got back I saw that Neil had hosted the entire two hours with short little segments here and there about the financial markets.
When Katrina had first hit, I wrote that I was undecided what would be important economically, the devastation of what was lost or the lift from what gets spent on rebuilding. I saw no reason to draw a conclusion right away.
As time has gone on I have to say I can not see how this can possibly be a net positive anytime soon. Money spent in the region is clearly positive but not net positive. Who can know how much this could take off of GDP but it seems plausible that having this part of the country gummed up will slow all sorts of things down. Also, a point made on Fox, there will not be much tax revenue collected from businesses for a while in that part of the country.
It also makes sense that weeks on end of $3 gasoline, if that's what we get, will be a problem for a lot of consumers.
I am totally baffled by the Fed giving no real nod to the hurricanes, especially given its past willingness to make changes in the face of past crises.
I don't see the dollar collapsing like Jim Rogers, weaker yes, but collapsing no.
If the double hurricanes will be a net negative I think it may be a while before we start to see it coming through. The immediate aftermath could easily last a month or two if not longer, point being that the stock market may not think much of weak data points for a while. If this is right, it would tie into the idea that I have had for a while that the S+P 500 could work higher for a while before doing anything else.
The obvious question should be that if the market will be rough in 2006, as I think, why would the market go up first?
My first answer would be I could be wrong. There seems to be a lack of real selling pressure though. As of now, with the various ups and downs lately we are still in the same narrow range we have been in for months. Also, even if the fundamentals start to deteriorate, as I think they might, there is no reason that the market can't go up. It has happened plenty of times in the past; rising market with lousy fundamentals.
The important thing is understanding visibility for problems down the road. We have had a bull market for the last 30 months (starting from March 2003, some would say it started in November 2002). Soon we may have a bear market. This is how the market works. I feel no emotion about this, it just seems logical. If I am wrong, great, I won't have to make big changes in client portfolios. If I am right I will have to make changes. Since this is totally outside the span of my control it makes no sense to me to worry about this. I'll just stick to my knitting and listen to what the market says.
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3 comments:
Roger:
I just feel like sitting back with a cold brewsky in my clutch and forgetting about this fluctuating market for awhile. It's boring the heck out of me.
The Fed is not acting post Katrina because they are more afraid of inflation than economic slowdown. Commodities are at high levels and the government is printing money like the makers of Monopoly. After spending the first 15 years of his term fighting inflation, Greenspan is not going to leave it as a major issue for his successor.
I read elsewhere that what Greenspan is really worried about is the US government's ballooning deficit resulting from continuing high expenditures in Iraq and the increasing need for spending as a result of the hurricanes. All those extra dollars government is pushing into the US economy will be that too many dollars will be chasing goods and services and their prices will increase. The resulting inflation down the road is what is really upsetting for the Fed and they will have to keep interest rates going up to slow the economy down eventhough much of the US manufacturing sector could use a boost. Where should you park your investments in the meanwhile?
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