State of the Stock Market Analysis for the Week Ending June 14, 2014 (Iraq Throws Cold Water on Lukewarm Economy 6-14-14)
There is nothing like spending more than a decade “saving” the people of Iraq and establishing “freedom” and “peace” for all, only to have it seemingly unravel right now at the speed of light. News of insurgent Sunni troops marching on Shiite-led Bagdad threw a wrench in the United States’ plan for a “new ” Iraq. It doesn’t look good there right now, and the world is watching to see if additional countries (like Iran) are drawn into a mess that could really push global oil prices to the upside. Prices are spiking, and that could throw cold water on an already lukewarm global recovery.
It is interesting to have “stability” in Iraq ending in tandem with the Fed ending its tapering program and possibly raising interest rates. Lower oil prices and ultra-low interest rates have been the backbone of the post-Lehman recovery of the past five years, and now we suddenly have the possibility of both oil prices and interest rates reversing course. This has caught investors’ attention, but the damage has been minimal so far, and it was nice to see stocks wrap up the week relatively flat (and near their all-time highs).
Consumers are still on edge, though, as was evident in Friday’s University of Michigan Consumer sentiment number, which came in at 81.2 versus the expected 82.8. The low interest rates and gas prices over the past few post-Great Recession years were supposed to get consumers back on their feet, get employment levels soaring and get housing back to normal levels. All three of these areas leave much to be desired, and the last thing they need right now is rising interest rates and higher oil prices.
We will see what happens with Iraq and interest rates, but we can at least rest easy knowing that the stock market has done so well since the popping of the housing bubble and the Lehman-led financial markets crash of 2007-2009. Is the stock market watching the same economy that the rest of us are? Who knows, but the stock market has been strong and bullet-proof for more than five years, and the bulls are confident it will remain strong. There are some strategists and sages, however, warning that the good times might not last forever.
It is always great to hear the insight of an old Wall Street legend, and it was interesting getting the take from Tiger Hedge Fund guru Julian Robertson yesterday on CNBC. He said that we were in a “Bubble Economy” created in part by central bankers and “managers” all around the world. On the bull market in stocks, Robertson said that Central Banks have made it “unattractive to own bonds at all,” and that is driving yield-seeking money into stocks. He added, “That’s not saying they are pushing stock prices up… but they ARE.”
As many recall, Robertson closed his infamous Tiger Fund in 1999 as the Tech Bubble soared. He said back then that the stock market no longer made sense to him, and he was quitting for a while. He was no fan of the “dot.com revolution,” and after the 2000-2002 crash in equities, he looked pretty smart for getting out. In yesterday’s interviews, Robertson expressed concern about what happens to equities when the bond market finally turns (and rates head higher). Remember the 1980s EF Hutton tag line about how,” When EF Hutton talks, people listen?” Well, when Julian Robertson talks, people SHOULD listen.
That is not to say the bull market is in dire straits at all. It has confounded most pundits for years with its upward drive, but there are a lot of negatives out there that could make more upside challenging to say the least. When you have an escalating war in Iraq, spiking oil prices, a new Fed Chairman, a weakening housing market, a wary consumer sector, and a generally soggy economy, it is difficult to make the case for another big leg up in the stock market.
It is encouraging to see this past week’s weakness act, well, weak. A stock market that holds its ground no matter what the forces of the universe throw against it is impressive. For all of the negatives of the past five years, this bull market has had quite a run. It is still holding up well, and we should see more of the same this summer. That said, the Gorilla wishes each and all a wonderful and restful “Full Moon” weekend.” Summer is on the way, and maybe a summer rally is not far behind.
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