I’m tired of writing “the market’s cheap, and this is nothing to worry about” stories. There was this one from mid-January, when bullish sentiment was supposed to take the market down; this one when the Arab revolts roiled stocks a couple of weeks later; and this one after Japan’s disasters shook things up again.
And now here we are again, and not even the killing of Osama Bin Laden can distract us from the tumbling price of silver.
I have no idea whether stocks will fall another 5% or not, but there are certainly signs there for the cherry-picking that all the people who missed the rally will not be so lucky. Here are some cherry pits to chew on.
- The market can’t even seem to summon up a good, old-fashioned 2% purge these days. It’s not so much that there’s a mob of dip-buyers out there, but more the lack of selling beyond the short-term machinations of hedge-fund machines.
- The addition of 179,000 private-sector jobs, as reported this morning by the ADP, now qualifies as mildly disappointing news, which tells you something about the rising expectations of those watching the jobs market most closely. And yet the number’s small enough in absolute terms to suggest, at best, modest pay raises. There are plenty of applicants out there for every job not yet performed by software.
- There is persistent strength among the leading techs that have either broken out to new ranges or are about to do so. I’m looking at Intel (INTC) above $23 and doubting the global growth story is over; and Dell (DELL), which stumbled briefly on disappointment with Microsoft (MSFT) last week the day after I touted its potential, but is now back at the top of its year-long trading range. I see Apple (AAPL) still near $350 — and I think this is how great stocks correct, by running in place for a bit.
The quick and ruthless correction in commodities and commodity shares certainly doesn’t suggest we will be hauling our dollars in wheelbarrows any time soon, does it? It could take quite a while to go from a present that's slightly less prosperous than the past to a real dystopia.
And in the meantime, we have the example of Applied Materials (AMAT), which is paying a 55% cash premium for a company a quarter of its own size — and its stock is down less than 1%, which is to say the market loves this deal. Applied Materials needs Varian (VSEA) to meet the rising demand for chip-making tools, notably for the solar industry, and was earning so little on its cash that the deal — fat premium and all — will boost earnings per share within a year.
If you want to worry that the weaker dollar will undermine foreigners’ demand for US stocks (I’m looking at you, serial kvetcher Gary Kaminsky), why not think first about what the weaker dollar will do to the earnings of heavy exporters like Applied Materials?
Or you could just bother to check Treasury data to see that foreigners have remained net buyers of US stocks over the last two years, despite the persistent depreciation of the dollar.
But who needs facts, when we can trade worst-case scenarios?