Monday, September 15, 2014

The ever recurring anxiety plague of equity market pundits

After an unexpectedly stellar August in the U.S. equity market, market pundits and traders are once again grinding their teeth, obsessing over what a modest rise in interest rates might mean as a sluggish market this month is underway.  What it will mean, when it happens, is a slight retreat by the equity markets in the short term after any announcement or hint by Yellen, and then back to the basics of looking at stock values.  Getting some tiny interest rate hikes behind us is the best thing that could happen.

The slowly growing economy in the U.S. outshines the rest of the developed world.  Of course it is not better than China's absolute growth rate, but China's growth rate is decelerating and the corruption and pollution there are appalling, while the infrastructure needs in less prosperous parts of the country are huge.

The worries of the pundit class are at least a reminder to do the good housekeeping of a portfolio.  Selling a few stocks, mostly small caps, that have likely gone as far as they can go, or close to it, and selling parts of positions that have grown substantially outsized since March 2009 are both happening here now.  This gives more liquidity for both comfort and for the ability to move on any new opportunities that arise.  Since capital gains are taxable at Obama's new long term rates that are moved up substantially by his health care tariff, it obviously makes sense to keep some of that liquidity for tax time.

If there is any long term worry about the stock market having substantial downside, it is negative geopolitical events that would cause it.  So far the U.S. equity market has only been affected marginally by this, and it is solely related to the sanctions on Russia and how they will boomerang back to in some companies and industries.  However, the near term potentially significant wild card remains Russia and Ukraine as Putin is a self absorbed and unchecked player whose expansionist goals remain in place.  A more aggressive move by him in Ukraine or one of the Baltic states would shake the West, and their impotence against Putin in that area would be transparent.

One might wonder about the horrific medieval forces in the Middle East, and Obama's intention to more or less go to war again there.  Where the battles are being fought are not economic forces of consequence, except for oil production.  The next round of defense department spending, off the budget, will soon be underway and will positively impact some areas of our economy.

As an aside, when will we decide on a uniform name for our enemy.  Most people in the press and in Congress had settled on ISIS.  Recently the all knowing Obama decided to revive ISIL as the name and the executive administration has followed of course.  Apparently the heinous jihadist warriors have now settled on just Islamic State.  It is positive to see some sort of coalition developing to fight them, even if a somewhat timid one.  The leadership of Saudi Arabia is truly terrified.  The group must be stopped, but has anybody paused to think whether we are reacting just as they want us to do.

What a bleak way to end this comment.




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