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The U.S. stock market has
held up remarkably well in recent weeks, despite surging commodities and
precious metals prices, bond yields hitting new 4-year highs, a shaky
dollar, mixed economic data, and a downward spiral in presidential
approval ratings.
Not
to mention a less-than-stellar outlook from corporate America, just as
another earnings season gets under way.
For
the optimists, that suggests the market is still in a bullish,
climb-the-wall-of-worry mode. Which means, in their eyes at least, that
share prices will invariably move higher, signaling that things remain
on a positive track, despite current developments.
Many
seasoned observers, meanwhile, are scratching their heads, wondering
just what they are missing. Especially in light of the fact that
technical and seasonal factors remain unsupportive at best, the U.S.
real estate bubble seems to be bursting, and the three-year old rally is
looking very tired.
Perhaps
the bulls are right, and the pessimists need to wake up to a new
reality. One where they can move past their fears and join with those in
the majority who are betting on an inevitable further rise in share
prices that will be a precursor of still more good times to come.
Then
again, maybe the rose-colored-glasses set are wrong. Maybe what we are
seeing now, in fact, are the early signs of something altogether
different from what we have experienced before.
The
kind of thing that sclerotic, poorly-led, overleveraged, and
often-corrupt “lesser-developed” nations have gone through—over
and over again.
In
other words, an economic and financial crisis, where the home currency
plunges, interest rates surge into the double-digits, and the cost of
energy, basic commodities, and a wide range of goods and services goes
through the roof.
And,
curiously enough, where share prices—especially those of
export-sensitive companies—often soar to dizzying heights, albeit in
nominal terms, as beleaguered investors seek some sort of shelter from
the ravages of inflation and foreign-exchange-related chaos.
A
situation that is largely familiar to those who live in places like
Brazil, Argentina, Turkey and Zimbabwe. But not—up to now, at
least—those who are from America.
Indeed,
rather than being viewed as a cause for optimism and evidence of future
economic vitality, rising stock prices in circumstances where the
current account deficit is 7% of GDP, where total debt is three times
output, and where there is xenophobic talk of tariffs and walled
borders, may, in fact, represent something else.
Namely,
the desperation of those who fear being left impoverished by the
economic bunker-buster that such imbalances have inflicted on
similarly-situated nations in the past.
In
other words, those betting that U.S. equity prices will move
considerably higher in the period ahead should be careful what they wish
for.
© 2006 Michael J. Panzner
Editorial Archive
Michael
Panzner is author of The
New Laws of the Stock Market Jungle: An Insider’s Guide to
Successful Investing in a Changing World
and a 20-year veteran of the stock, bond and currency markets. He
is currently at work on a book about global financial risks.
Contact
Information
Michael
J. Panzner
P.O. Box 115
Manhasset, NY 11030
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