Back at 2100
June 19, 2005
I was on
Since I have
been mostly out of the mix, I cannot say I can offer one of my magical
explanations of current market events (imagine that?!?), but I did learn some
interesting tidbits while I was off in
Barron's ran an article this weekend that adds to the endless cacophony of voices weighing in on the housing bubble: "The Bubble's New Home" by Johnathan R. Laing. In this article famous and well-respect economist Robert Shiller provides a well-argued warning. Interestingly enough, the article references the real-estate market in Australia, noting that Sydney's residential boom has stumbled: "…real (inflation-adjusted) prices rose 12.8% in 2003 before dropping 2.5% in 2004 and remaining wobbly ever since." This is not quite the sound of a bubble popping, but it will probably be important to keep tabs on how this slowdown unfolds in the coming months and years.
I casually watched the Australian news with interest as the Australian stock market slowly crept on to new highs for the year largely on the strength of energy, commodity, and resource stocks. Sure enough, the Australian ETF, EWA, is looking better than ever now. Oil has hit new highs for this current bull run, and it threatens the $60 a barrel level that skeptics have given no respect. The continued general disbelief in oil's run continues to amuse me. I maintain that the trend is up and strong for oil, and I will not back down from that until the Chinese economy breaks down and Americans stop driving SUVs down the block to the grocery store. Guess when that will happen, eh? Now, I can understand the psychology of the skeptics: I have long refused to believe in the housing bubble, but that market has not cared about my opinion as prices of homes just keep going higher in all but the worst markets, and the stocks of the homebuilders keep climbing right along to new all-time highs as well. Other pockets of consumer spending have been trooping along "just fine thank you very much" as evidenced by the recent moves in numerous important retail stocks. To name just a few, check out the earnings reports and charts of Best Buy (BBY), Nordstrom (JWN), Sears Holding (SHLD), and Coach (COH).
It does seem odd that the consumer can continue to gobble up goods while oil continues ever higher, gold clings onto to its long-term uptrend, numerous other resource stocks seem to be turning around, and the Fed desperately, albeit "measuredly," pushes up short-term interest rates, but we did see a surprisingly strong wage growth report a few weeks ago. We are also probably witnessing the consumer's increasing willingness to allocate more of his or her household income to servicing housing debt and costs. Regardless, the leveraging up of the global economy continues nearly unabated. Where the wheel will stop, no one knows…just make sure you are careful out there! Things will really get "interesting" if the market can finally make a convincing move higher from here. Stay tuned. The second quarter of the year ends in less than two weeks. Let's measure the mood again in July as the institutional pressure to buff up performance subsides, and we can get back to fearing the next batch of earnings reports.