As much as one might try, it’s hard to be in a bad mood on the beach. Some have tried, but few have been successful. Almost no task is impossible in theory, but practice is another thing, and the sun is too formidable a force. In the summertime, the living is easy… and the markets are lazy, which is the actual subject of this post. As much as economic data and interpretation whisper to the markets when they sleep, the markets smile and shoo away the fly. Even as these voices persist, the message is treated with the same blend of acknowledgment and apathy by the half-conscious listener: another quiet afternoon. Low volume.
But it isn’t only the perennial cranks this time that constitute the voices. It isn’t just the litany of doomsayers with doctorates – the likes of Marc Faber, for example, or Nouriel Roubini. Nor are the vocal academics (Krugman) or the prominent bears (Rosenberg) alone in the blogs and editorial pages anymore. Fed chairmen are chiming in, both past and present: Alan Greenspan is voicing serious concern, and so is, in his own way, Ben Bernanke. We take these fellows with a grain of salt because of political ties, right? OK, here then are independents: Silicon Valley favorite Kedrosky, fund management superstar Kyle Bass, famed cycle theorist Zulauf, Elliot wave guru Prechter, all in agreement, despite their wide assortment of fundamental and technical styles.
And still, the market prances on, bouncing happily around the trading range of summer and a joyous earnings season that just passed. In fairness to the sleepy, earnings season was indeed rather good, or at least better than the triple-threat of unemployment, heavy debt loads, and diminishing asset values, would imply. In short, earnings were up. Guidance was positive from certain corners, less so from others, and when all else fails, businesses can cut payrolls, or consolidate in a wave of M&A to trim more costs – in yet another round of layoffs. And in fairness to a market driven by trading, earnings growth is what matters, and the next quarter’s most of all.
Nevertheless – and as August is past its mid-way point it is probably acceptable form to begin, a little bit, to consider stuff – while high unemployment may positively reflect in higher corporate profits, and while reduced consumer spending may reflect in reduced debt, the longer term corporate news is this: At some point along these lines, revenues will start to fall. Eh, whatever, I know, we’re still in August, and we’ll worry about revenues after Labor Day… but I’m just saying. And when second-quarter GDP growth is revised to almost nothing next week, causing markets to stir a little before nodding off again, the issue is not resolved or mitigated on account of the month.Come September, when we are ready to be serious, we will have catching up to do. And hopefully we will get right down to business. For purposes of markets and finance, which is the real subject of this post, the catching up should have something to do with re-evaluating everything. According to multiple sources, we are at the start of a new era that is quite different from a mere cyclical swing. According to one source (Rosenberg), we are in a great recession that never actually ended. According to one source (Kedrosky, not a crank), we are actually in a depression. For more than intellectual reasons, I can’t wait until September, because the sooner we begin to reassess and maybe even redefine pre-existing standards and notions, the better. Conversely, the longer we wait, the much less good.
Disclosure: No positions.